UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
Commission File Number: 001-11307-01
 
 
Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)

Delaware
74-2480931
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
   
333 North Central Avenue
 
Phoenix, AZ
85004-4414
(Address of principal executive offices)
(Zip Code)
 
(602) 366-8100
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
R Yes   o ÿ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        R Yes o ÿ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer R                                                               Accelerated filer o ÿ                                   Non-accelerated filer o ÿ                                             Smaller reporting company o ÿ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ÿ o Yes R No

On July 30, 2010, there were issued and outstanding 470,436,600 shares of the registrant’s common stock, par value $0.10 per share.

 
 
 
 

FREEPORT-McMoRan COPPER & GOLD INC.

TABLE OF CONTENTS

   
 
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E-1
   


FREEPORT-McMoRan COPPER & GOLD INC.

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(In Millions)
 
                 
ASSETS
               
Current assets:
               
Cash and cash equivalents
 
$
3,042
   
$
2,656
 
Trade accounts receivable
   
1,009
     
1,517
 
Other accounts receivable
   
235
     
286
 
Inventories:
               
Product
   
1,031
     
1,110
 
Materials and supplies, net
   
1,097
     
1,093
 
Mill and leach stockpiles
   
768
     
667
 
Other current assets
   
111
     
104
 
Total current assets
   
7,293
     
7,433
 
Property, plant, equipment and development costs, net
   
16,272
     
16,195
 
Long-term mill and leach stockpiles
   
1,353
     
1,321
 
Intangible assets, net
   
333
     
347
 
Other assets
   
728
     
700
 
Total assets
 
$
25,979
   
$
25,996
 
                 
LIABILITIES AND EQUITY
               
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
2,065
   
$
2,038
 
Dividends payable, including dividends payable to noncontrolling interests
   
329
     
99
 
Accrued income taxes
   
240
     
474
 
Current portion of reclamation and environmental obligations
   
198
     
214
 
Current portion of long-term debt and short-term borrowings
   
101
     
16
 
Rio Tinto share of joint venture cash flows
   
50
     
161
 
Total current liabilities
   
2,983
     
3,002
 
Long-term debt, less current portion
   
4,684
     
6,330
 
Deferred income taxes
   
2,612
     
2,503
 
Reclamation and environmental obligations, less current portion
   
2,005
     
1,981
 
Other liabilities
   
1,402
     
1,423
 
Total liabilities
   
13,686
     
15,239
 
Equity:
               
FCX stockholders’ equity:
               
6¾% Mandatory Convertible Preferred Stock
   
–
     
2,875
 
Common stock
   
59
     
55
 
Capital in excess of par value
   
18,639
     
15,680
 
Accumulated deficit
   
(4,466
)
   
(5,805
)
Accumulated other comprehensive loss
   
(268
)
   
(273
)
Common stock held in treasury
   
(3,432
)
   
(3,413
)
Total FCX stockholders’ equity
   
10,532
     
9,119
 
Noncontrolling interests
   
1,761
     
1,638
 
Total equity
   
12,293
     
10,757
 
Total liabilities and equity
 
$
25,979
   
$
25,996
 
                 



The accompanying notes are an integral part of these consolidated financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

                         
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2010
 
2009
 
2010
 
2009
 
                 
 
(In Millions, Except Share Amounts)
 
                         
Revenues
$
3,864
 
$
3,684
 
$
8,227
 
$
6,286
 
Cost of sales:
                       
Production and delivery
 
2,052
   
1,809
   
3,970
   
3,371
 
Depreciation, depletion and amortization
 
249
   
256
   
520
   
488
 
Lower of cost or market inventory adjustments
 
–
   
–
   
–
   
19
 
Total cost of sales
 
2,301
   
2,065
   
4,490
   
3,878
 
Selling, general and administrative expenses
 
101
   
89
   
196
   
151
 
Exploration and research expenses
 
38
   
24
   
69
   
54
 
Restructuring and other charges
 
–
   
(2
)
 
–
   
23
 
Total costs and expenses
 
2,440
   
2,176
   
4,755
   
4,106
 
Operating income
 
1,424
   
1,508
   
3,472
   
2,180
 
Interest expense, net
 
(122
)
 
(158
)
 
(267
)
 
(289
)
Losses on early extinguishment of debt
 
(50
)
 
–
   
(77
)
 
–
 
Other income (expense), net
 
9
   
(3
)
 
21
   
(17
)
Income before income taxes and equity in
                       
affiliated companies’ net earnings
 
1,261
   
1,347
   
3,149
   
1,874
 
Provision for income taxes
 
(433
)
 
(542
)
 
(1,111
)
 
(873
)
Equity in affiliated companies’ net earnings
 
4
   
7
   
9
   
18
 
Net income
 
832
   
812
   
2,047
   
1,019
 
Net income attributable to noncontrolling interests
 
(168
)
 
(164
)
 
(438
)
 
(268
)
Preferred dividends
 
(15
)
 
(60
)
 
(63
)
 
(120
)
Net income attributable to FCX common
                       
stockholders
$
649
 
$
588
 
$
1,546
 
$
631
 
                         
Net income per share attributable to
                       
FCX common stockholders:
                       
Basic
$
1.42
 
$
1.43
 
$
3.48
 
$
1.56
 
Diluted
$
1.40
 
$
1.38
 
$
3.40
 
$
1.54
 
                         
Weighted-average common shares outstanding:
                       
Basic
 
458
   
412
   
444
   
406
 
Diluted
 
473
   
471
   
474
   
426
 
                         
Dividends declared per share of common stock
$
0.30
 
$
–
 
$
0.45
 
$
–
 




The accompanying notes are an integral part of these consolidated financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   
Six Months Ended
 
   
June 30,
 
   
2010
   
2009
 
   
(In Millions)
 
                 
Cash flow from operating activities:
               
Net income
 
$
2,047
   
$
1,019
 
Adjustments to reconcile net income to net cash provided by
               
operating activities:
               
Depreciation, depletion and amortization
   
520
     
488
 
Lower of cost or market inventory adjustments
   
–
     
19
 
Stock-based compensation
   
75
     
57
 
Charges for reclamation and environmental obligations, including accretion
   
75
     
112
 
Payments of reclamation and environmental obligations
   
(97
)
   
(47
)
Losses on early extinguishment of debt
   
77
     
–
 
Deferred income taxes
   
107
     
61
 
Intercompany profit on PT Freeport Indonesia sales to PT Smelting
   
(29
)
   
37
 
Increase in long-term mill and leach stockpiles
   
(31
)
   
(31
)
Changes in other assets and liabilities
   
5
     
71
 
Other, net
   
26
     
36
 
(Increases) decreases in working capital:
               
Accounts receivable
   
502
     
(803
)
Inventories, and mill and leach stockpiles
   
(39
)
   
53
 
Other current assets
   
(9
)
   
105
 
Accounts payable and accrued liabilities
   
(161
)
   
(675
)
Accrued income and other taxes
   
(186
)
   
394
 
Net cash provided by operating activities
   
2,882
     
896
 
                 
Cash flow from investing activities:
               
Capital expenditures:
               
North America copper mines
   
(81
)
   
(100
)
South America
   
(154
)
   
(111
)
Indonesia
   
(195
)
   
(128
)
Africa
   
(50
)
   
(458
)
Other
   
(47
)
   
(97
)
Proceeds from the sale of assets and other, net
   
8
     
(1
)
Net cash used in investing activities
   
(519
)
   
(895
)
                 
Cash flow from financing activities:
               
Net proceeds from sale of common stock
   
–
     
740
 
Proceeds from debt
   
35
     
155
 
Repayments of debt
   
(1,655
)
   
(285
)
Cash dividends and distributions paid:
               
Common stock
   
(130
)
   
–
 
Preferred stock
   
(95
)
   
(120
)
Noncontrolling interests
   
(145
)
   
(63
)
Contributions from noncontrolling interests
   
15
     
29
 
Net payments for stock-based awards
   
(6
)
   
(7
)
Excess tax benefit from stock-based awards
   
4
     
–
 
Other
   
–
     
(3
)
Net cash (used in) provided by financing activities
   
(1,977
)
   
446
 
                 
Net increase in cash and cash equivalents
   
386
     
447
 
Cash and cash equivalents at beginning of year
   
2,656
     
872
 
Cash and cash equivalents at end of period
 
$
3,042
   
$
1,319
 



The accompanying notes are an integral part of these consolidated financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

   
FCX Stockholders’ Equity
         
   
Mandatory
             
Accumu-
                 
   
Convertible
             
lated
 
Common Stock
    Total          
   
Preferred Stock
 
Common Stock
         
Other
 
Held in Treasury
 
FCX
         
   
Number
     
Number
     
Capital in
 
Accumu-
 
Compre-
 
Number
     
Stock-
 
Non-
     
   
of
 
At Par
 
of
 
At Par
 
Excess of
 
lated
 
hensive
 
of
 
At
 
holders’
 
controlling
 
Total
 
   
Shares
 
Value
 
Shares
 
Value
 
Par Value
 
Deficit
 
Loss
 
Shares
 
Cost
 
Equity
 
Interests
 
Equity
 
   
(In Millions)
 
                                                                           
Balance at December 31, 2009
   
29
 
$
2,875
   
552
 
$
55
 
$
15,680
 
$
(5,805
)
$
(273
)
 
122
 
$
(3,413
)
$
9,119
 
$
1,638
 
$
10,757
 
Conversions of 6¾% Mandatory
                                                                         
Convertible Preferred Stock
   
(29
)
 
(2,875
)
 
39
   
4
   
2,871
   
–
   
–
   
–
   
–
   
–
   
–
   
–
 
Exercised and issued stock-based
                                                                         
awards
   
–
   
–
   
1
   
–
   
13
   
–
   
–
   
–
   
–
   
13
   
–
   
13
 
Stock-based compensation
   
–
   
–
   
–
   
–
   
74
   
–
   
–
   
–
   
–
   
74
   
–
   
74
 
Tax benefit for stock-based awards
   
–
   
–
   
–
   
–
   
1
   
–
   
–
   
–
   
–
   
1
   
–
   
1
 
Tender of shares for stock-based
                                                                         
awards
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
(19
)
 
(19
)
 
–
   
(19
)
Dividends on common stock
   
–
   
–
   
–
   
–
   
–
   
(207
)
 
–
   
–
   
–
   
(207
)
 
–
   
(207
)
Dividends on preferred stock
   
–
   
–
   
–
   
–
   
–
   
(63
)
 
–
   
–
   
–
   
(63
)
 
–
   
(63
)
Dividends and distributions to
                                                                         
noncontrolling interests
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
(330
)
 
(330
)
Contributions from noncontrolling
                                                                         
interests
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
15
   
15
 
Comprehensive income:
                                                                         
Net income
   
–
   
–
   
–
   
–
   
–
   
1,609
   
–
   
–
   
–
   
1,609
   
438
   
2,047
 
Other comprehensive income,
                                                                         
  net of taxes:
                                                                         
Unrealized losses on securities
   
–
   
–
   
–
   
–
   
–
   
–
   
(2
)
 
–
   
–
   
(2
)
 
–
   
(2
)
Defined benefit plans:
                                                                         
  Amortization of unrecognized
                                                                         
amounts
   
–
   
–
   
–
   
–
   
–
   
–
   
7
   
–
   
–
   
7
   
–
   
7
 
Other comprehensive income
   
–
   
–
   
–
   
–
   
–
   
–
   
5
   
–
   
–
   
5
   
–
   
5
 
Total comprehensive income
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
1,614
   
438
   
2,052
 
Balance at June 30, 2010
   
–
 
$
–
   
592
 
$
59
 
$
18,639
 
$
(4,466
)
$
(268
)
 
122
 
$
(3,432
)
$
10,532
 
$
1,761
 
$
12,293
 
                                                                           







The accompanying notes are an integral part of these consolidated financial statements.

 
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.  
GENERAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated financial statements and notes contained in its 2009 Annual Report on Form 10-K. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month and six-month periods ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

2.  
EARNINGS PER SHARE
FCX’s basic net income per share of common stock was calculated by dividing net income attributable to common stock by the weighted-average shares of common stock outstanding during the period. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in millions, except per share amounts):
 
   
Three Months Ended
 
Six Months Ended
 
   
June 30,
 
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Net income
 
$
832
 
$
812
 
$
2,047
 
$
1,019
 
Net income attributable to noncontrolling interests
   
(168
)
 
(164
)
 
(438
)
 
(268
)
Preferred dividends
   
(15
)
 
(60
)
 
(63
)
 
(120
)
Net income attributable to FCX common stockholders
   
649
   
588
   
1,546
   
631
 
Plus income impact of assumed conversion of:
                         
6¾% Mandatory Convertible Preferred Stock a
   
15
   
49
   
63
   
–
b
5½% Convertible Perpetual Preferred Stock c
   
–
   
11
   
–
   
23
 
Diluted net income attributable to FCX common
                         
stockholders
 
$
664
 
$
648
 
$
1,609
 
$
654
 
                           
Weighted-average shares of common stock outstanding
   
458
   
412
   
444
   
406
 
Add stock issuable upon conversion, exercise or
                         
vesting of:
                         
6¾% Mandatory Convertible Preferred Stock a
   
13
   
39
   
26
   
–
b
5½% Convertible Perpetual Preferred Stock c
   
–
   
18
   
–
   
18
 
Dilutive stock options
   
2
   
1
   
3
d
 
1
 
Restricted stock
   
–
   
1
   
1
   
1
 
Weighted-average shares of common stock outstanding
                         
for purposes of calculating diluted net income per share
   
473
   
471
   
474
   
426
 
                           
Diluted net income per share attributable to
                         
FCX common stockholders
 
$
1.40
 
$
1.38
 
$
3.40
 
$
1.54
 
                           
 
a.  
All outstanding 6¾% Mandatory Convertible Preferred Stock automatically converted on May 1, 2010, into FCX common stock (refer to Note 6 for further discussion). During the second quarter of 2010, 28 million shares of preferred stock were converted into 39 million shares of FCX common stock (conversion rate of 1.3716 shares of FCX common stock).
 
b.  
Preferred dividends of $97 million and additional shares of FCX common stock of approximately 39 million shares for the 6¾% Mandatory Convertible Preferred Stock were excluded for the six months ended June 30, 2009, because they were anti-dilutive.
 
c.  
In September 2009, FCX redeemed the remaining outstanding shares of its 5½% Convertible Perpetual Preferred Stock.
 
d.  
Potential additional shares of FCX common stock of approximately one million were anti-dilutive.
 
FCX’s convertible instruments are excluded from the computation of diluted net income per share of common stock when including the assumed conversion of these instruments results in an anti-dilutive effect on earnings per share (see footnote b above).
 
Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period also are excluded from the computation of diluted net income per share of common stock.
 
 
Excluded amounts were approximately nine million stock options with a weighted-average exercise price of $75.56 for second-quarter 2010 and approximately six million stock options with a weighted-average exercise price of $77.55 for the six months ended June 30, 2010. Stock options for approximately eight million shares with a weighted-average exercise price of $73.00 were excluded for second-quarter 2009, and stock options for approximately nine million shares with a weighted-average exercise price of $69.73 were excluded for the six months ended June 30, 2009.

3.  
PENSION AND POSTRETIREMENT BENEFITS
The components of net periodic benefit cost for pension and postretirement benefits follow (in millions):
 
   
Three Months Ended
 
Six Months Ended
 
   
June 30,
 
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Service cost
 
$
8
 
$
8
 
$
18
 
$
17
 
Interest cost
   
26
   
28
   
53
   
55
 
Expected return on plan assets
   
(24
)
 
(20
)
 
(47
)
 
(40
)
Amortization of net actuarial loss
   
6
   
7
   
11
   
15
 
Curtailments
   
–
   
–
   
–
   
(4
)
Special retirement benefits
   
–
   
–
   
–
   
(5
)
Net periodic benefit costs
 
$
16
 
$
23
 
$
35
 
$
38
 
                           
Net periodic benefit costs decreased by $7 million in second-quarter 2010 mainly as a result of an increase in the expected return on plan assets ($4 million) primarily because of the 2009 gains on plan assets.

Net periodic benefit costs decreased by $3 million in the first six months of 2010 mainly as a result of an increase in the expected return on plan assets ($7 million) and a decrease in the amortization of actuarial losses ($4 million) primarily because of the 2009 gains on plan assets. These decreases were partially offset by the absence of the first-quarter 2009 gains on special retirement benefits and curtailments ($9 million) caused by workforce reductions in connection with the fourth-quarter 2008 and first-quarter 2009 revised mine operating plans.

4.  
INVENTORIES, AND MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
   
June 30,
 
December 31,
 
   
2010
 
2009
 
Mining Operations:
             
Raw materials
 
$
1
 
$
1
 
Work-in-process
   
95
   
108
 
Finished goods a
   
600
   
588
 
Atlantic Copper, S.A. (Atlantic Copper):
             
Raw materials (concentrates)
   
144
   
171
 
Work-in-process
   
187
   
227
 
Finished goods
   
4
   
15
 
Total product inventories
   
1,031
   
1,110
 
Total materials and supplies, net b
   
1,097
   
1,093
 
Total inventories
 
$
2,128
 
$
2,203
 
               
 
a.  
Primarily includes copper concentrates, anodes, cathodes and rod, and molybdenum.
 
b.  
Materials and supplies inventory is net of obsolescence reserves totaling $23 million at June 30, 2010, and $21 million at December 31, 2009.


A summary of mill and leach stockpiles follows (in millions):
 
   
June 30,
 
December 31,
 
   
2010
 
2009
 
Current:
             
Mill stockpiles
 
$
58
 
$
46
 
Leach stockpiles
   
710
   
621
 
Total current mill and leach stockpiles
 
$
768
 
$
667
 
               
Long-term a :
             
Mill stockpiles
 
$
453
 
$
442
 
Leach stockpiles
   
900
   
879
 
Total long-term mill and leach stockpiles
 
$
1,353
 
$
1,321
 
               
 
a.  
Metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for lower of cost or market (LCM) molybdenum inventory adjustments totaling $19 million ($19 million to net income attributable to FCX common stockholders or $0.04 per diluted share) for the first six months of 2009 resulting from lower molybdenum prices.

5.  
INCOME TAXES
FCX’s income tax provision for second-quarter 2010 resulted from taxes on international operations ($382 million) and U.S. operations ($51 million). FCX’s income tax provision for the first six months of 2010 resulted from taxes on international operations ($979 million) and U.S. operations ($132 million). FCX’s consolidated effective income tax rate was 35 percent for the first six months of 2010.

FCX’s income tax provision for second-quarter 2009 resulted from taxes on international operations ($538 million) and U.S. operations ($4 million). FCX’s income tax provision for the first six months of 2009 resulted from taxes on international operations ($868 million) and U.S. operations ($5 million). During the first half of 2009, FCX did not record a benefit for losses generated in the U.S., and those losses could not be used to offset income generated from international operations. These factors combined with the high proportion of income earned in Indonesia, which was taxed at an effective tax rate of 43 percent, caused FCX’s consolidated effective income tax rate of 47 percent for the first six months of 2009 to be higher than the U.S. federal statutory rate of 35 percent.

6.  
DEBT AND EQUITY TRANSACTIONS
During the second quarter of 2010, FCX purchased in the open market $85 million of its 8.25% Senior Notes due 2015 for $92 million and $193 million of its 8.375% Senior Notes due 2017 for $210 million. These open-market purchases resulted in losses on early extinguishment of debt totaling $28 million ($23 million to net income attributable to FCX common stockholders or $0.05 per diluted share). For the first six months of 2010, FCX purchased in the open market $218 million of its 8.25% Senior Notes for $237 million and $329 million of its 8.375% Senior Notes for $358 million, which resulted in losses on early extinguishment of debt totaling $55 million ($46 million to net income attributable to FCX common stockholders or $0.10 per diluted share).

On April 1, 2010, FCX redeemed all of its $1.0 billion of outstanding Senior Floating Rates Notes due 2015 for which holders received 101 percent of the principal amount together with accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt totaling $22 million ($19 million to net income attributable to FCX common stockholders or $0.04 per diluted share) in the second quarter and the six-month periods of 2010.

Consolidated interest expense (before capitalization) totaled $132 million in second-quarter 2010, $172 million in second-quarter 2009, $283 million for the first six months of 2010 and $348 million for the first six months of 2009. Capitalized interest expense totaled $10 million in second-quarter 2010, $14 million in second-quarter 2009, $16 million for the first six months of 2010 and $59 million for the first six months of 2009. Lower capitalized interest in the 2010 periods primarily reflects the completion of development activities for the initial project at FCX’s Tenke Fungurume mine, which commenced initial copper production in March 2009.

During April 2010, holders of FCX’s 6¾% Mandatory Convertible Preferred Stock elected to convert 787,158 preferred shares into 1,079,615 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock). On May 1, 2010, the remaining 27,504,512 shares of FCX’s 6¾% Mandatory Convertible
 
Preferred Stock were automatically converted into 37,725,139 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock). For the first six months of 2010, a total of 28,749,560 outstanding shares of FCX’s 6¾% Mandatory Convertible Preferred Stock were converted into 39,432,793 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock).

In April 2010, FCX’s Board of Directors (Board) authorized an increase in the annual cash dividend on its common stock from $0.60 per share to $1.20 per share. On June 24, 2010, FCX declared a quarterly dividend of $0.30 per share, which was paid on August 1, 2010, to common shareholders of record at the close of business on July 15, 2010.

Total comprehensive income attributable to FCX common stockholders totaled $666 million in second-quarter 2010, $654 million in second-quarter 2009, $1,614 million for the first six months of 2010 and $825 million (including a $61 million gain related to the remeasurement of certain defined benefit plans during the first quarter of 2009) for the first six months of 2009.

In May 2000, FCX’s Board adopted a shareholder rights plan. Under the rights plan, each share of outstanding common stock included a purchase right that would become exercisable if a third party acquired (or announced it would acquire) 20 percent or more of FCX’s outstanding common stock without the approval of FCX’s Board. If such acquisition occurred, each purchase right (other than rights held by the third party) entitled its holder to purchase FCX’s securities at a substantial discount. The shareholder rights plan expired in accordance with its terms on May 16, 2010.

7.  
FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation or if it anticipates a future activity that is likely to occur and will result in exposure to market risks and FCX intends to offset or mitigate such risks. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price, foreign currency and interest rate risks. The fair values of FCX’s derivative financial instruments are based on widely published market prices.

A summary of unrealized (losses) gains recognized in income before income taxes and equity in affiliated companies’ net earnings for derivative financial instruments that are designated and qualify as fair value hedge transactions, along with the unrealized gains (losses) on the related hedged item (firm sales commitments) follows (in millions):
 
 
Three Months Ended June 30,
 
 
2010
 
2009
 
     
Hedged
     
Hedged
 
 
Derivative
 
Item
 
Derivative
 
Item
 
Commodity contracts:
                       
Freeport-McMoRan Corporation’s (FMC)
                       
copper futures and swap contracts a
$
(20
)
$
20
 
$
1
 
$
(1
)

 
Six Months Ended June 30,
 
 
2010
 
2009
 
     
Hedged
     
Hedged
 
 
Derivative
 
Item
 
Derivative
 
Item
 
Commodity contracts:
                       
FMC’s copper futures and swap contracts a
$
(18
)
$
18
 
$
6
 
$
(6
)
                         
 
a.  
Amounts are recorded in revenues.

FCX realized (losses) gains, which are recorded in revenues, of $(9) million during second-quarter 2010, $15 million during second-quarter 2009, $1 million during the first six months of 2010 and $18 million during the first six months of 2009 from matured derivative financial instruments that qualified for hedge accounting.
 
A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for derivative financial instruments, including embedded derivatives, which do not qualify as hedge transactions follows (in millions):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2010
 
2009
 
2010
 
2009
 
Commodity contracts:
                       
Embedded derivatives in provisional sales contracts a
$
(330
)
$
283
 
$
(199
)
$
596
 
Embedded derivatives in provisional purchase
                       
contracts b
 
1
   
(2
)
 
(1
)
 
(1
)
PT Freeport Indonesia’s copper forward contracts a
 
–
   
(97
)
 
–
   
(97
)
Atlantic Copper’s copper forward contracts b
 
1
   
–
   
2
   
4
 
FMC’s copper futures and swap contracts a
 
(1
)
 
17
   
(1
)
 
49
 
 
a.  
Amounts recorded in revenues.
 
b.  
Amounts recorded in cost of sales as production and delivery costs.

A summary of the fair values of unsettled derivative financial instruments recorded on the consolidated balance sheets follows (in millions):
 
   
June 30,
 
December 31,
 
   
2010
 
2009
 
Derivatives designated as hedging instruments
             
Commodity contracts:
             
FMC’s copper futures and swap contracts:
             
Asset position a
 
$
1
 
$
11
 
Liability position b
   
(8
)
 
–
 
               
Derivatives not designated as hedging instruments
             
Commodity contracts:
             
Embedded derivatives in provisional sales/purchases contracts: c
             
Asset position
 
$
48
 
$
235
 
Liability position
   
(190
)
 
(70
)
Atlantic Copper’s copper forward contracts:
             
Asset position a
   
–
   
1
 
FMC’s copper futures and swap contracts: d
             
Asset position a
   
–
   
2
 
               
 
a.  
Amounts recorded in other current assets.
 
b.  
Amounts recorded in accounts payable and accrued liabilities.
 
c.  
Amounts recorded either as a net accounts receivable or a net accounts payable.
 
d.  
FCX has paid $19 million to brokers associated with margin requirements (recorded in other current assets) at June 30, 2010, and FCX had received $6 million from brokers associated with margin requirements at December 31, 2009.
 
Commodity Contracts.   From time to time, FCX has entered into forward, futures and swap contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of June 30, 2010, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative commodity contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FMC’s U.S. copper rod customers request a fixed market price instead of the New York Mercantile Exchange (COMEX) average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures and swap contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in FCX receiving the COMEX average copper price in the month of shipment. Hedge gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month and six-month periods ended June 30, 2010 and 2009, resulting from hedge ineffectiveness. At June 30, 2010, FCX held copper futures and
 
swap contracts that qualified for hedge accounting for 63 million pounds at an average price of $3.06 per pound, with maturities through July 2011.

Derivatives Not Designated as Hedging Instruments
Embedded derivatives and derivative financial instruments that do not meet the criteria to qualify for hedge accounting are discussed below.

Embedded Derivatives. As described in Note 1 to FCX’s 2009 Annual Report on Form 10-K under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on London Metal Exchange (LME) or COMEX prices at the time of shipment as specified in the contract. Similarly, FCX purchases copper and molybdenum under contracts that provide for provisional pricing (molybdenum purchases are based on an average Metals Week Molybdenum Oxide price). FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative ( i.e. , the price settlement mechanism that is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrates or cathodes at the then-current LME or COMEX price (copper), London Bullion Market Association price (gold) or the average Metals Week Molybdenum Oxide price (molybdenum) as defined in the contract. Mark-to-market price fluctuations recorded through the settlement date are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts. A summary of FCX’s embedded derivatives at June 30, 2010, follows:
 
       
Average Price
     
   
Open
 
Per Unit
 
Maturities
 
   
Positions
 
Contract
 
Market
 
Through
 
Embedded derivatives in provisional
                     
sales contracts:
                     
Copper (millions of pounds)
 
680
 
$
3.19
 
$
2.93
 
November 2010
 
Gold (thousands of ounces)
 
146
   
1,218
   
1,243
 
August 2010
 
Embedded derivatives in provisional
                     
purchase contracts:
                     
Copper (millions of pounds)
 
173
   
3.18
   
2.95
 
November 2010
 
Molybdenum (thousands of pounds)
 
238
   
16.18
   
14.11
 
July 2010
 

Copper Forward Contracts. Atlantic Copper enters into forward copper contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At June 30, 2010, Atlantic Copper held net forward copper sales contracts for 23 million pounds at an average price of $2.96 per pound, with maturities through August 2010.

In April 2009, FCX entered into copper forward sales contracts to lock in prices at an average of $1.86 per pound on 355 million pounds of PT Freeport Indonesia’s provisionally priced copper sales at March 31, 2009, which final priced from April 2009 through July 2009. These economic hedge transactions were intended to reduce short-term price volatility in earnings and cash flows. Gains and losses for these economic hedge transactions were recorded in revenues. FCX has not entered into additional forward sales contracts since April 2009 for its provisionally priced copper sales, but may enter into future transactions to lock in pricing on provisionally priced sales from time to time. However, FCX does not intend to change its long-standing policy of not hedging future copper production.

Copper Futures and Swap Contracts. In addition to the contracts discussed above that qualify for fair value hedge accounting, FCX also has similar contracts with FMC’s U.S. copper rod customers that do not qualify for hedge accounting because of certain terms in the sales contracts. Gains and losses for these economic hedge transactions are recorded in revenues. At June 30, 2010, FCX held copper futures and swap contracts for one million pounds at an average price of $2.83 per pound, with maturities through December 2010.
 
Foreign Currency Exchange Contracts.   As a global company, FCX transacts business in many countries and in many currencies. Foreign currency transactions at FCX’s international subsidiaries increase its risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. FCX may hedge or protect its international subsidiaries’ foreign currency transactions from time to time by entering into forward exchange contracts to lock in or minimize the effects of fluctuations in exchange rates. FCX had no outstanding foreign currency exchange contracts at June 30, 2010.

Interest Rate Swap Contracts.   From time to time, FCX or its subsidiaries may enter into interest rate swaps to manage its exposure to interest rate changes and to achieve a desired proportion of fixed-rate versus floating-rate debt based on current and projected market conditions. FCX may enter into interest rate swap contracts to lock in an interest rate considered to be favorable in order to protect against its exposure to variability in future interest payments attributable to increases in interest rates of the designated floating-rate debt. In some situations, FCX may enter into fixed-to-floating interest rate swap contracts to protect against changes in the fair value of the underlying fixed-rate debt that result from market interest rate changes and to take advantage of lower interest rates. FCX had no outstanding interest rate swap contracts at June 30, 2010.

Credit Risk.   FCX is exposed to credit loss when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses highly rated financial institutions that meet certain requirements. FCX also periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their credit ratings. FCX does not anticipate that any of the financial institutions it deals with will default on their obligations. At June 30, 2010, FCX did not have any significant credit exposure associated with derivative transactions.

Other Financial Instruments.   Other financial instruments include cash and cash equivalents, accounts receivable, trust assets, available-for-sale securities, accounts payable and accrued liabilities, dividends payable, Rio Tinto share of joint venture cash flows and long-term debt. Refer to Note 8 for the fair values of these financial instruments.

8.  
FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are described below:
 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
Level 2
Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
 
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
A summary of FCX’s financial assets and liabilities measured at fair value on a recurring basis follows (in millions):
 
 
Fair Value at June 30, 2010
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
                       
Cash equivalents:
                       
Money market funds
$
2,904
 
$
2,904
 
$
–
 
$
–
 
Time deposits
 
99
   
99
   
–
   
–
 
Total cash equivalents
 
3,003
   
3,003
   
–
   
–
 
                         
Trust assets (current and long-term):
                       
U.S. core fixed income fund
 
42
   
–
   
42
   
–
 
Government mortgage-backed securities
 
26
   
–
   
26
   
–
 
Government bonds and notes
 
25
   
–
   
25
   
–
 
Corporate bonds
 
21
   
–
   
21
   
–
 
Asset-backed securities
 
18
   
–
   
18
   
–
 
Money market funds
 
19
   
19
   
–
   
–
 
Total trust assets
 
151
   
19
   
132
   
–
 
                         
Available-for-sale securities:
                       
Time deposits
 
44
   
44
   
–
   
–
 
Money market funds
 
7
   
7
   
–
   
–
 
Equity securities
 
4
   
4
   
–
   
–
 
Total available-for-sale securities
 
55
   
55
   
–
   
–
 
                         
Derivatives:
                       
Embedded derivatives in provisional sales/purchases
                       
contracts
 
48
   
48
   
–
   
–
 
Copper futures and swap contracts
 
1
   
1
   
–
   
–
 
Total derivatives
 
49
   
49
   
–
   
–
 
                         
Total assets
$
3,258
 
$
3,126
 
$
132
 
$
–
 
                         
Liabilities
                       
Derivatives:
                       
Embedded derivatives in provisional sales/purchases
                       
contracts
$
(190
)
$
(190
)
$
–
 
$
–
 
Copper futures and swap contracts
 
(8
)
 
(8
)
 
–
   
–
 
Total derivative liabilities
$
(198
)
$
(198
)
$
–
 
$
–
 
                         

Valuation Techniques

Money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Fixed income securities (government and agency securities, corporate bonds, asset-backed securities and U.S. core fixed income fund) are valued using a bid evaluation or a mid evaluation. A bid evaluation is an estimated price at which a dealer would pay for a security. A mid evaluation is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and as such are classified within Level 1 of the fair value hierarchy.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted market prices based on the forward LME or COMEX prices (copper) and the London Bullion Market Association price (gold) and, as such, are classified within Level 1 of the fair value hierarchy. FCX’s embedded derivatives on provisional molybdenum purchases are valued based on the latest average weekly Metals Week Molybdenum Dealer Oxide prices and, as such, are classified within Level 1 of the fair value hierarchy.
 
FCX’s derivative financial instruments for copper futures and swap contracts and forward contracts are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets (refer to Note 7 for further discussion).

The carrying value for certain FCX financial instruments, ( i.e., accounts receivable, accounts payable and accrued liabilities, dividends payable, and Rio Tinto’s share of joint venture cash flows) approximate fair value, and therefore, have been excluded from the table below. A summary of the carrying amount and fair value of FCX’s other financial instruments follows (in millions):
 
 
At June 30, 2010
 
At December 31, 2009
 
 
Carrying
 
Fair
 
Carrying
 
Fair
 
 
Amount
 
Value
 
Amount
 
Value
 
Cash and cash equivalents a
$
3,042
 
$
3,042
 
$
2,656
 
$
2,656
 
Derivatives included in accounts receivable a
 
48
   
48
   
235
   
235
 
Trust assets (current and long-term) a, b
 
151
   
151
   
146
   
146
 
Available-for-sale securities (current and
                       
long-term) a, b
 
55
   
55
   
74
   
74
 
Derivative assets a, c
 
1
   
1
   
14
   
14
 
Derivatives included in accounts payable and
                       
accrued liabilities a
 
(198
)
 
(198
)
 
(70
)
 
(70
)
Long-term debt (including amounts due
                       
within one year) d
 
(4,785
)
 
(5,203
)
 
(6,346
)
 
(6,735
)
                         
 
a.  
Recorded at fair value.
 
b.  
Current portion included in other current assets and long-term portion included in other assets.
 
c.  
Included in other current assets.
 
d.  
Recorded at cost except for long-term debt acquired in the Phelps Dodge Corporation acquisition, which was recorded at fair value at the acquisition date. Fair value of substantially all of FCX’s long-term debt is estimated based on quoted market prices.

9.  
NEW ACCOUNTING STANDARDS
Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements. In January 2010, the Financial Accounting Standards Board (FASB) issued accounting guidance intended to improve disclosures related to fair value measurements. This guidance requires significant transfers in and out of Level 1 and Level 2 fair value measurements to be disclosed separately along with the reasons for the transfers. Additionally, in the reconciliation for the fair value measurements using significant unobservable inputs (Level 3), separate information about purchases, sales, issuances and settlements must be presented (cannot net as one number). This guidance also provides clarification for existing disclosures on (i) level of disaggregation and (ii) inputs and valuation techniques. In addition, this guidance includes conforming amendments for employers’ disclosure of postretirement benefit plan assets. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are required for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

10.  
SUBSEQUENT EVENTS
FCX evaluated events after June 30, 2010, and through the date the consolidated financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

11.  
BUSINESS SEGMENTS
FCX has organized its operations into five primary divisions – North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum operations. Notwithstanding this structure, FCX internally reports information on a mine-by-mine basis. Therefore, FCX concluded that its operating segments include individual mines. Operating segments that meet certain thresholds are reportable segments. Further discussion of the reportable segments included in FCX’s primary operating divisions, as well as FCX’s other reportable segments – Rod & Refining and Atlantic Copper Smelting & Refining – follows.

North America Copper Mines.   FCX has six operating copper mines in North America – Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone in New Mexico. The North America copper mines include open-pit mining, sulfide ore concentrating, leaching, and solution extraction and electrowinning (SX/EW) operations. A majority of the copper produced at the North America copper mines is cast into copper rod by FCX’s Rod & Refining operations. The North America copper mines include the Morenci copper mine as a reportable segment.

Morenci. The Morenci open-pit mine, located in southeastern Arizona, primarily produces copper cathodes. FCX owns an 85 percent undivided interest in Morenci through an unincorporated joint venture. During the first six months of 2010, the Morenci mine produced 40 percent of FCX’s North America copper.

Other Mines. Other mines include FCX’s other operating southwestern U.S. copper mines – Sierrita, Bagdad, Safford, Miami and Tyrone – and its southwestern U.S. copper mines that are currently on care-and-maintenance status. In addition to copper, the Sierrita and Bagdad mines produce molybdenum concentrates as a by-product.

South America.   South America mining includes four operating copper mines – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These operations include open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. South America mining includes the Cerro Verde copper mine as a reportable segment.

Cerro Verde. The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces copper cathodes and copper concentrates. In addition to copper, the Cerro Verde mine produces molybdenum concentrates as a by-product. FCX owns a 53.56 percent interest in Cerro Verde. During the first six months of 2010, the Cerro Verde mine produced 51 percent of FCX’s South America copper.

Other Mines. Other mines include FCX’s Chilean copper mines – Candelaria, Ojos del Salado and El Abra. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver as by-products. FCX owns an 80 percent interest in both the Candelaria and Ojos del Salado mines, and owns a 51 percent interest in the El Abra mine.

Indonesia.   Indonesia mining includes PT Freeport Indonesia’s Grasberg minerals district. PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and silver. FCX owns 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through PT Indocopper Investama. FCX has established certain unincorporated joint ventures with Rio Tinto, under which Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver.

Africa.   Africa mining includes the Tenke Fungurume copper and cobalt mining concessions in the Katanga province of the Democratic Republic of Congo. The Tenke Fungurume mine includes open-pit mining, leaching and SX/EW operations. In addition to copper, the Tenke Fungurume mine produces cobalt hydroxide. Copper cathode production commenced in March 2009, and the first copper cathode was sold in second-quarter 2009. FCX owns an effective 57.75 percent interest in Tenke Fungurume.

Molybdenum.   The Molybdenum segment is an integrated producer of molybdenum, with mining, sulfide ore concentrating, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world, and includes the wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. This segment also includes a sales company that purchases and sells molybdenum from the Henderson mine as well as from FCX’s North and South America copper mines that produce molybdenum as a by-product. In addition, at times this segment roasts and/or
 
processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products. The Molybdenum segment also includes FCX’s wholly owned Climax molybdenum mine in Colorado, which has been on care-and-maintenance status since 1995.

Rod & Refining.   The Rod & Refining segment consists of copper conversion facilities located in North America, and includes a refinery, three rod mills and a specialty copper products facility. These operations process copper produced at the North America mines and purchased copper into copper cathode, rod and custom copper shapes. At times these operations refine copper and produce copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

Atlantic Copper Smelting & Refining.   Atlantic Copper, FCX’s wholly owned smelting unit in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes. PT Freeport Indonesia sells copper concentrate and the South America copper mines sell copper concentrate and cathode to Atlantic Copper.

Intersegment Sales. Intersegment sales between FCX’s operations are based on similar arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

Allocations. FCX allocates certain operating costs, expenses and capital expenditures to the operating divisions and individual segments. However, not all costs and expenses applicable to a mine or operation are allocated. All U.S. federal and state income taxes are recorded and managed at the corporate level, whereas foreign income taxes are recorded and managed at the applicable mine or operation. In addition, most exploration and research activities are managed at the corporate level, and those costs along with some selling, general and administrative costs are not allocated to the operating divisions or segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.
 
Business Segments

(In Millions)
North America Copper Mines
 
South America
 
Indonesia
 
Africa
                     
                                         
Atlantic
 
Corporate,
     
                                         
Copper
 
Other &
     
     
Other
     
Cerro
 
Other
             
Molyb-
 
Rod &
 
Smelting
 
Elimi-
 
FCX
 
 
Morenci
 
Mines
 
Total
 
Verde
 
Mines
 
Total
 
Grasberg
 
Tenke
 
denum
 
Refining
 
& Refining
 
nations
 
Total
 
Three Months Ended June 30, 2010
                                                                             
Revenues:
                                                                             
Unaffiliated customers
$
1
 
$
1
 
$
2
 
$
274
 
$
453
 
$
727
 
$
871
a
$
207
 
$
325
 
$
1,123
 
$
605
 
$
4
 
$
3,864
 
Intersegment
 
386
   
656
   
1,042
   
108
   
14
   
122
   
56
   
–
   
–
   
6
   
11
   
(1,237
)
 
–
 
Production and delivery
 
177
   
360
   
537
   
148
   
241
   
389
   
427
   
96
   
190
   
1,121
   
605
   
(1,313
)
 
2,052
 
Depreciation, depletion and amortization
 
35
   
36
   
71
   
33
   
26
   
59
   
57
   
30
   
12
   
2
   
9
   
9
   
249
 
Selling, general and administrative expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
23
   
–
   
3
   
–
   
4
   
71
   
101
 
Exploration and research expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
38
   
38
 
Operating income (loss)
 
175
   
261
   
436
   
201
   
200
   
401
   
420
   
81
   
120
   
6
   
(2
)
 
(38
)
 
1,424
 
                                                                               
Interest expense, net
 
–
   
3
   
3
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
3
   
116
   
122
 
Provision for income taxes
 
–
   
–
   
–
   
68
   
66
   
134
   
177
   
18
   
–
   
–
   
–
   
104
   
433
 
Total assets at June 30, 2010
 
1,882
   
4,218
   
6,100
   
4,318
   
2,744
   
7,062
   
4,703
   
3,458
   
1,781
   
306
   
934
   
1,635
   
25,979
 
Capital expenditures
 
12
   
50
   
62
   
19
   
87
   
106
   
97
   
11
   
5
   
1
   
3
   
11
   
296
 
                                                                               
                                                                               
Three Months Ended June 30, 2009
                                                                             
Revenues:
                                                                             
Unaffiliated customers
$
18
 
$
27
 
$
45
 
$
342
 
$
465
 
$
807
 
$
1,430
a
$
57
 
$
186
 
$
741
 
$
415
 
$
3
 
$
3,684
 
Intersegment
 
234
   
424
   
658
   
70
   
7
   
77
   
180
   
–
   
–
   
6
   
–
   
(921
)
 
–
 
Production and delivery
 
144
   
317
   
461
   
153
   
213
   
366
   
415
   
92
b
 
162
   
743
   
419
   
(849
)
 
1,809
 
Depreciation, depletion and amortization
 
34
   
30
   
64
   
40
   
29
   
69
   
78
   
14
   
13
   
2
   
9
   
7
   
256
 
Selling, general and administrative expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
22
   
–
   
3
   
–
   
5
   
59
   
89
 
Exploration and research expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
24
   
24
 
Restructuring and other charges
 
2
   
–
   
2
   
–
   
(6
)
 
(6
)
 
–
   
–
   
–
   
–
   
–
   
2
   
(2
)
Operating income (loss)
 
72
   
104
   
176
   
219
   
236
   
455
   
1,095
   
(49
)
 
8
   
2
   
(18
)
 
(161
)
 
1,508
 
                                                                               
Interest expense, net
 
1
   
4
   
5
   
–
   
–
   
–
   
–
   
3
   
–
   
–
   
1
   
149
   
158
 
Provision for (benefit from) income taxes
 
–
   
–
   
–
   
67
   
70
   
137
   
461
   
(25
)
 
–
   
–
   
–
   
(31
)
 
542
 
Total assets at June 30, 2009
 
2,022
   
4,023
   
6,045
   
4,016
   
2,535
   
6,551
   
5,312
   
3,160
   
1,750
   
292
   
842
   
672
   
24,624
 
Capital expenditures
 
5
   
23
   
28
   
33
   
4
   
37
   
73
   
207
   
16
   
3
   
6
   
5
   
375
 
                                                                               
                                                                               
a.
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $373 million in second-quarter 2010 and $563 million in second-quarter 2009.
 
     
b.
Includes charges totaling $49 million associated with Tenke Fungurume’s project start-up costs.
 
                                                                               

 
Business Segments (Continued)

(In Millions)
North America Copper Mines
 
South America
 
Indonesia
 
Africa
                     
                                         
Atlantic
 
Corporate,
     
                                         
Copper
 
Other &
     
     
Other
     
Cerro
 
Other
             
Molyb-
 
Rod &
 
Smelting
 
Elimi-
 
FCX
 
 
Morenci
 
Mines
 
Total
 
Verde
 
Mines
 
Total
 
Grasberg
 
Tenke
 
denum
 
Refining
 
& Refining
 
nations
 
Total
 
Six Months Ended June 30, 2010
                                                                             
Revenues:
                                                                             
Unaffiliated customers
$
10
 
$
16
 
$
26
 
$
732
 
$
950
 
$
1,682
 
$
2,032
a
$
456
 
$
600
 
$
2,189
 
$
1,238
 
$
4
 
$
8,227
 
Intersegment
 
742
   
1,330
   
2,072
   
191
   
45
   
236
   
354
   
–
   
–
   
13
   
11
   
(2,686
)
 
–
 
Production and delivery
 
323
   
678
   
1,001
   
319
   
446
   
765
   
902
   
206
   
375
   
2,188
   
1,233
   
(2,700
)
 
3,970
 
Depreciation, depletion and amortization
 
77
   
76
   
153
   
67
   
53
   
120
   
120
   
60
   
25
   
4
   
19
   
19
   
520
 
Selling, general and administrative expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
52
   
–
   
6
   
–
   
10
   
128
   
196
 
Exploration and research expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
1
   
–
   
–
   
68
   
69
 
Operating income (loss)
 
352
   
592
   
944
   
537
   
496
   
1,033
   
1,312
   
190
   
193
   
10
   
(13
)
 
(197
)
 
3,472
 
                                                                               
Interest expense, net
 
2
   
6
   
8
   
–
   
–
   
–
   
–
   
2
   
–
   
–
   
5
   
252
   
267
 
Provision for income taxes
 
–
   
–
   
–
   
173
   
158
   
331
   
570
   
43
   
–
   
–
   
–
   
167
   
1,111
 
Capital expenditures
 
15
   
66
   
81
   
31
   
123
   
154
   
195
   
50
   
12
   
2
   
12
   
21
   
527
 
                                                                               
                                                                               
Six Months Ended June 30, 2009
                                                                             
Revenues:
                                                                             
Unaffiliated customers
$
39
 
$
50
 
$
89
 
$
588
 
$
803
 
$
1,391
 
$
2,350
a
$
57
 
$
332
 
$
1,354
 
$
707
 
$
6
 
$
6,286
 
Intersegment
 
446
   
786
   
1,232
   
147
   
48
   
195
   
382
   
–
   
–
   
12
   
–
   
(1,821
)
 
–
 
Production and delivery
 
334
   
680
   
1,014
   
302
   
431
   
733
   
765
   
108
b
 
281
   
1,357
   
712
   
(1,599
)
 
3,371
 
Depreciation, depletion and amortization
 
70
   
69
   
139
   
75
   
59
   
134
   
143
   
17
   
22
   
4
   
17
   
12
   
488
 
Lower of cost or market inventory adjustments
 
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
19
   
–
   
–
   
–
   
19
 
Selling, general and administrative expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
40
   
–
   
7
   
–
   
7
   
97
   
151
 
Exploration and research expenses
 
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
–
   
54
   
54
 
Restructuring and other charges
 
26
   
(2
)
 
24
   
–
   
–
   
–
   
–
   
–
   
(1
)
 
(2
)
 
–
   
2
   
23
 
Operating income (loss)
 
55
   
89
   
144
   
358
   
361
   
719
   
1,784
   
(68
)
 
4
   
7
   
(29
)
 
(381
)
 
2,180
 
                                                                               
Interest expense, net
 
2
   
6
   
8
   
–
   
1
   
1
   
1
   
3
   
–
   
–
   
2
   
274
   
289
 
Provision for (benefit from) income taxes
 
–
   
–
   
–
   
114
   
107
   
221
   
749
   
(26
)
 
–
   
–
   
–
   
(71
)
 
873
 
Capital expenditures
 
34
   
66
   
100
   
70
   
41
   
111
   
128
   
458
   
60
   
6
   
12
   
19
   
894
 
                                                                               
                                                                               
a.
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $859 million in the first six months of 2010 and $826 million in the first six months of 2009.
 
     
b.
Includes charges totaling $49 million associated with Tenke Fungurume’s project start-up costs.
 
                                                                               



TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan COPPER & GOLD INC.

We have reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of June 30, 2010, and the related consolidated statements of income for the three- and six-month periods ended June 30, 2010 and 2009, the consolidated statements of cash flows for the six-month periods ended June 30, 2010 and 2009, and the consolidated statement of equity for the six-month period ended June 30, 2010. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31, 2009, and the related consolidated statements of operations, cash flows, and equity for the year then ended (not presented herein), and in our report dated February 26, 2010, we expressed an unqualified opinion on those consolidated financial statements and which report included an explanatory paragraph for the Company’s adoption of guidance originally issued in FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (codified in FASB ASC Topic 810, Consolidation ) effective January 1, 2009. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 
/s/ ERNST & YOUNG LLP

Phoenix, Arizona
August 6, 2010
 
Item 2 .   Management's Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries. You should read this discussion in conjunction with our financial statements, the related Management’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of our Business and Properties in our Form 10-K for the year ended December 31, 2009, filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results. References to “Notes” are Notes included in our Notes to Consolidated Financial Statements. Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations all references to earnings or losses per share are on a diluted basis, unless otherwise noted.

We are one of the world’s largest copper, gold and molybdenum mining companies in terms of reserves and production. Our portfolio of assets includes the Grasberg minerals district in Indonesia, significant mining operations in North and South America, and the Tenke Fungurume minerals district in the Democratic Republic of Congo (DRC). The Grasberg minerals district contains the largest single recoverable copper reserve and the largest single gold reserve of any mine in the world based on the latest available reserve data provided by third-party industry consultants. We also operate Atlantic Copper, our wholly owned copper smelting and refining unit in Spain.

Our results for the second quarter and first six months of 2010, compared with the 2009 periods, primarily reflected higher realized metals prices, partially offset by lower copper and gold sales volumes. Refer to “Consolidated Results” for further discussion of our consolidated financial results for the quarter and six-month periods ended June 30, 2010 and 2009.

On April 1, 2010, we redeemed our $1 billion of outstanding Senior Floating Rate Notes, and during the first six months of 2010, we made open-market debt purchases totaling $547 million (refer to Note 6 for further discussion). In April 2010, our Board of Directors increased the annual cash dividend on our common stock to $1.20 per share. In addition, during second-quarter 2010, our 6¾% Mandatory Convertible Preferred Stock converted into 39 million shares of our common stock. Refer to “Capital Resources and Liquidity – Financing Activities” for further discussion.

We have significant reserves and future development opportunities within our portfolio of assets. At December 31, 2009, we had estimated consolidated recoverable proven and probable reserves of 104.2 billion pounds of copper (determined using a long-term average copper price of $1.60 per pound), with potential for greater reserves at higher prices.

We are undertaking major development projects to extend mine lives at El Abra and Grasberg, and are also advancing development activities at the Climax molybdenum mine. In addition, a number of studies are under way to evaluate expansion options at certain of our mining operations. The advancement of these studies will provide flexibility in initiating expansion projects as market conditions warrant. Refer to “Operations” for further discussion of our current operating and development activities.

We view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy, and will continue to adjust our operating strategy as market conditions change.
 
OUTLOOK
 
Consolidated sales from mines for the year 2010 are expected to approximate 3.8 billion pounds of copper, 1.8 million ounces of gold and 63 million pounds of molybdenum, including 970 million pounds of copper, 410 thousand ounces of gold and 15 million pounds of molybdenum for third-quarter 2010. Mine sequencing at Grasberg is resulting in significant fluctuations in quarterly sales of copper and gold during 2010. These sales volume estimates are dependent on the achievement of targeted mining rates, the successful operation of production facilities, the impact of weather conditions and other factors.

Assuming average prices of $1,200 per ounce of gold and $14 per pound of molybdenum for the remainder of 2010 and achievement of current 2010 sales volume and cost estimates, we estimate our consolidated unit net cash costs (net of by-product credits and including Africa mining) for our copper mining operations would average approximately $0.86 per pound of copper for the year 2010. Quarterly unit net cash costs will vary with fluctuations in sales volumes of copper and by-products. The impact of price changes on consolidated unit net cash costs in 2010 would approximate $0.01 per pound for each $50 per ounce change in the average price of gold for the remainder of 2010, and $0.005 per pound for each $2 per pound change in the average price of molybdenum for the remainder of 2010. Estimated consolidated unit net cash costs are higher, compared with consolidated unit net cash costs of $0.55 per pound of copper in 2009, primarily because of lower projected copper and gold sales volumes from Grasberg, combined with increases in commodity-based input costs. Refer to “Consolidated Results – Production and Delivery Costs” for further discussion of consolidated unit net cash costs.

Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our production levels, production costs, cash payments for income taxes and interest, other working capital changes and other factors. Based on projected consolidated sales volumes for 2010 and assuming average prices of $3.00 per pound of copper, $1,200 per ounce of gold and $14 per pound of molybdenum for the remainder of 2010, our consolidated operating cash flows for the year 2010 are expected to exceed $5 billion, net of an estimated $0.2 billion for working capital requirements. The impact of price changes on operating cash flows in 2010 would approximate $150 million for each $0.10 per pound change in the average price of copper, $30 million for each $50 per ounce change in the average price of gold and $25 million for each $2 per pound change in the average price of molybdenum.

Capital expenditures for the year 2010 are expected to approximate $1.7 billion, including $0.8 billion for major projects, primarily associated with underground development activities at Grasberg, the sulfide ore project at El Abra and a new sulphur burner facility at Safford. For 2009, capital expenditures totaled $1.6 billion, which included $0.8 billion for major projects. We have resumed certain project development activities at our mining operations and a number of studies are ongoing, which may result in increased capital spending programs. Refer to “Operations” for further discussion.

COPPER, GOLD AND MOLYBDENUM MARKETS

World prices for copper, gold and molybdenum have fluctuated significantly since January 2000. The London Metal Exchange (LME) spot copper price varied from a low of $0.60 per pound in 2001 to a high of $4.08 per pound in 2008, the London gold price fluctuated from a low of approximately $256 per ounce in 2001 to a new high of $1,261 per ounce in June 2010, and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from $2.19 per pound in 2000 to a high of $39.25 per pound in 2005. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in our “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2009.
 
*  Excludes Shanghai stocks, producer, consumer and merchant stocks.

This graph presents LME spot copper prices and reported stocks of copper at the LME and the New York Mercantile Exchange (COMEX) from January 2000 through July 2010. From 2006 through most of 2008, disruptions associated with strikes and other operational issues, combined with growing demand from China and other emerging economies, resulted in low levels of inventory. Beginning in late 2008, slowing consumption led to increases in inventory levels; however, China’s increased buying activity contributed to a decline in exchange inventories during the first half of 2009. After reaching a low for the year in July 2009, inventories grew during the second half of 2009 with combined LME and COMEX stocks ending the year at approximately 592 thousand metric tons. Inventories have decreased since the end of 2009, and at June 30, 2010, combined LME and COMEX stocks totaled approximately 544 thousand metric tons, which represents approximately 10 days of global consumption.

Turmoil in the U.S. financial markets and concerns about the global economy negatively impacted copper prices in late 2008, which declined to a four-year low of $1.26 per pound in December 2008; however, copper prices improved during 2009 as a result of strong Chinese import activity and supply limitations. During second-quarter 2010, LME spot copper prices declined compared to first-quarter 2010 levels, because of concerns about the Chinese growth rate, the European debt crisis and global economic recovery. Copper prices ranged from $2.76 per pound to $3.61 per pound and averaged $3.18 per pound in second-quarter 2010. While the near-term outlook is uncertain, we believe the underlying fundamentals of the copper business remain positive, supported by limited supplies from existing mines and the absence of significant new development projects. Future copper prices are expected to be volatile and are likely to be influenced by demand from China, economic activity in the U.S. and other industrialized countries, the timing of the development of new supplies of copper and production levels of mines and copper smelters. The LME spot copper price closed at $3.26 per pound on July 30, 2010.
This graph presents London gold prices from January 2000 through July 2010. Continued investment demand and potential weakness in the U.S. dollar are expected to support gold prices, which reached a new high of $1,261 per ounce in June 2010. During second-quarter 2010, gold prices ranged from approximately $1,124 per ounce to $1,261 per ounce and averaged $1,197 per ounce. London gold prices closed at approximately $1,169 per ounce on July 30, 2010.

This graph presents the Metals Week Molybdenum Dealer Oxide weekly average price from January 2000 through July 2010. In late 2008, molybdenum prices declined significantly as a result of the financial market turmoil and a decline in demand; however, molybdenum prices improved during 2009 supported by Chinese imports and supply reductions. During second-quarter 2010, the weekly average price of molybdenum ranged from approximately $13.75 per pound to approximately $17.93 per pound and averaged $16.41 per pound. The weekly average Metals Week Molybdenum Dealer Oxide price was $14.13 per pound on July 30, 2010.
 
CONSOLIDATED RESULTS


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2010
 
2009
 
2010
 
2009
 
Financial Data (in millions, except per share amounts)
                       
Revenues a
$
3,864
b
$
3,684
b
$
8,227
b
$
6,286
b
Operating income
$
1,424
b
$
1,508
b
$
3,472
b
$
2,180
b
Net income
$
832
 
$
812
 
$
2,047
 
$
1,019
 
Net income attributable to noncontrolling interests
$
168
 
$
164
 
$
438
 
$
268
 
Net income attributable to FCX common stockholders c
$
649
d
$
588
 
$
1,546
d
$
631
 
Diluted net income per share attributable to FCX common stockholders
$
1.40
d
$
1.38
 
$
3.40
d
$
1.54
 
Diluted weighted-average common shares outstanding
 
473
   
471
   
474
   
426
 
                         
FCX Mining Operating Data
                       
Copper (recoverable)
                       
Production (millions of pounds)
 
930
   
1,069
   
1,859
   
2,110
 
Sales, excluding purchases (millions of pounds)
 
914
   
1,102
   
1,874
   
2,122
 
Average realized price per pound
$
3.06
 
$
2.22
 
$
3.13
 
$
2.03
 
Site production and delivery costs per pound e,f
$
1.41
 
$
1.04
 
$
1.38
 
$
1.05
 
Unit net cash costs per pound e,f
$
0.97
 
$
0.43
 
$
0.89
 
$
0.54
 
Gold (recoverable)
                       
Production (thousands of ounces)
 
316
   
802
   
765
   
1,397
 
Sales, excluding purchases (thousands of ounces)
 
298
   
837
   
776
   
1,382
 
Average realized price per ounce
$
1,234
 
$
932
 
$
1,171
 
$
919
 
Molybdenum (recoverable)
                       
Production (millions of pounds)
 
17
   
13
   
34
   
27
 
Sales, excluding purchases (millions of pounds)
 
16
   
16
   
33
   
26
 
Average realized price per pound
$
18.18
 
$
10.11
 
$
16.62
 
$
10.65
 

a.  
Includes the impact of adjustments to provisionally priced concentrate and cathode sales recognized in prior periods. Refer to “Revenues” for further discussion.
 
b.  
Following is a summary of revenues and operating income (loss) by operating division (in millions):

 
Three Months Ended
June 30, 2010
 
Three Months Ended
June 30, 2009
 
         
Operating
         
Operating
 
         
Income
         
Income
 
   
Revenues
   
(Loss)
   
Revenues
   
(Loss)
 
North America copper mines
$
1,044
 
$
436
 
$
703
 
$
176
 
South America mining
 
849
   
401
   
884
   
455
 
Indonesia mining
 
927
   
420
   
1,610
   
1,095
 
Africa mining
 
207
   
81
   
57
   
(49
)
Molybdenum
 
325
   
120
   
186
   
8
 
Rod & Refining
 
1,129
   
6
   
747
   
2
 
Atlantic Copper Smelting & Refining
 
616
   
(2
)
 
415
   
(18
)
Corporate, other & eliminations
 
(1,233
)
 
(38
)
 
(918
)
 
(161
)
Total
$
3,864
 
$
1,424
 
$
3,684
 
$
1,508
 
 

 
Six Months Ended
June 30, 2010
 
Six Months Ended
June 30, 2009
 
         
Operating
         
Operating
 
         
Income
         
Income
 
   
Revenues
   
(Loss)
   
Revenues
   
(Loss)
 
North America copper mines
$
2,098
 
$
944
 
$
1,321
 
$
144
 
South America mining
 
1,918
   
1,033
   
1,586
   
719
 
Indonesia mining
 
2,386
   
1,312
   
2,732
   
1,784
 
Africa mining
 
456
   
190
   
57
   
(68
)
Molybdenum
 
600
   
193
   
332
   
4
 
Rod & Refining
 
2,202
   
10
   
1,366
   
7
 
Atlantic Copper Smelting & Refining
 
1,249
   
(13
)
 
707
   
(29
)
Corporate, other & eliminations
 
(2,682
)
 
(197
)
 
(1,815
)
 
(381
)
Total
$
8,227
 
$
3,472
 
$
6,286
 
$
2,180
 
 
c.  
After net income attributable to noncontrolling interests in subsidiaries and preferred dividends.
 
d.  
Includes net losses on early extinguishment of debt totaling $42 million ($0.09 per share) for second-quarter 2010 and $65 million ($0.14 per share) for the first six months of 2010. Refer to Note 6 for further discussion.
 
e.  
Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, excluding net noncash and other costs, and for the 2009 periods excludes Africa mining. For reconciliations of the per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Operations – Unit Net Cash Costs” and to “Product Revenues and Production Costs.”
 
f.  
The 2009 periods exclude the results of the Tenke Fungurume (Tenke) mine as start-up activities were still under way; the impact of including the results of the Tenke mine for the 2010 periods was $0.01 per pound of copper in second-quarter 2010 and less than $0.01 per pound of copper for the first six months of 2010.

Revenues
Consolidated revenues include the sale of copper concentrates, copper cathodes, copper rod, gold, molybdenum  and other metals by our North and South America copper mines, the sale of copper concentrates (which also contain significant quantities of gold and silver) by our Indonesia mining operation, the sale of copper cathodes and cobalt hydroxide by our Africa mining operation, the sale of molybdenum in various forms by our Molybdenum operations, and the sale of copper cathodes, copper anodes, and gold in anodes and slimes by Atlantic Copper. Consolidated revenues totaled $3.9 billion in second-quarter 2010 and $8.2 billion for the first six months of 2010, compared with $3.7 billion in second-quarter 2009 and $6.3 billion for the first six months of 2009. Following is a summary of changes in our consolidated revenues between periods (in millions):

 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
Consolidated revenues – 2009 periods
$
3,684
 
$
6,286
 
Higher sales price realizations from mining operations:
           
Copper
 
768
   
2,005
 
Gold
 
90
   
195
 
Molybdenum
 
132
   
198
 
(Lower) higher sales volumes from mining operations:
           
Copper
 
(417
)
 
(511
)
Gold
 
(502
)
 
(557
)
Molybdenum
 
8
   
82
 
Higher purchased copper
 
28
   
30
 
Lower net adjustments for prior period/year provisionally priced sales,
           
including PT Freeport Indonesia’s 2009 forward copper sales contracts
 
(193
)
 
(62
)
Higher Atlantic Copper revenues
 
201
   
542
 
Other, including intercompany eliminations
 
65
   
19
 
Consolidated revenues – 2010 periods
$
3,864
 
$
8,227
 

Consolidated revenues in the 2010 periods were favorably impacted by higher copper, gold and molybdenum prices. Realized copper prices increased to an average of $3.06 per pound in second-quarter 2010 (compared with $2.22 per pound in second-quarter 2009) and $3.13 per pound for the first six months of 2010 (compared with $2.03 per pound for the first six months of 2009). Realized gold prices increased to an average of $1,234 per ounce in second-quarter 2010 (compared with $932 per ounce in second-quarter 2009) and $1,171 per ounce for the first six months of 2010 (compared with $919 per ounce for the first six months of 2009). Realized molybdenum prices increased to an average of $18.18 per pound in second-quarter 2010 (compared with $10.11 per pound in second-quarter 2009) and $16.62 per pound for the first six months of 2010 (compared with $10.65 per pound for the first six months of 2009).

Consolidated sales volumes totaled 914 million pounds of copper, 298 thousand ounces of gold and 16 million pounds of molybdenum in second-quarter 2010, compared with 1.1 billion pounds of copper, 837 thousand ounces of gold and 16 million pounds of molybdenum in second-quarter 2009. For the first six months of 2010, consolidated sales volumes totaled 1.9 billion pounds of copper, 776 thousand ounces of gold and 33 million pounds of molybdenum, compared with 2.1 billion pounds of copper, 1.4 million ounces of gold and 26 million pounds of molybdenum for the first six months of 2009. Lower copper and gold sales volumes in the 2010 periods primarily reflect anticipated lower ore grades at Grasberg resulting from planned mine sequencing. Lower copper
 
sales volumes were also impacted by decreased volumes at our South America mining operations, partly offset by additional volumes provided by the Tenke mine in Africa. Higher molybdenum sales volumes reflect improved demand in the chemical sector. Refer to “Operations” for further discussion.

During the first half of 2010, approximately 47 percent of our mined copper was sold in concentrate, approximately 27 percent as cathodes and approximately 26 percent as rod from our North America operations. Substantially all concentrate and cathode sales contracts at our copper mining operations provide final copper pricing in a specified future period (generally one to four months from the shipment date) based primarily on quoted LME prices. We receive market prices based on prices in the specified future period, which results in price fluctuations recorded through revenues until the date of settlement. We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on our provisional priced concentrate and cathode sales that is adjusted to fair value through earnings each period, using the period-end forward prices, until the date of final pricing. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from higher prices received for contracts priced at current market rates and also from an increase related to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs.

At March 31, 2010, we had provisionally priced copper sales at our copper mining operations totaling 372 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $3.53 per pound. Lower prices during second-quarter 2010 resulted in adjustments to these prior period provisionally priced copper sales and decreased consolidated revenues by $169 million ($72 million to net income attributable to FCX common stockholders or $0.15 per share) in second-quarter 2010, compared with a net increase of $43 million ($13 million to net income attributable to FCX common stockholders or $0.03 per share) in second-quarter 2009. Additionally, adjustments to prior year provisionally priced copper sales at our copper mining operations resulted in a net decrease to consolidated revenues of $23 million ($9 million to net income attributable to FCX common stockholders or $0.02 per share) for the first six months of 2010, compared with a net increase of $132 million ($62 million to net income attributable to FCX common stockholders or $0.15 per share) for the first six months of 2009.

LME spot copper prices averaged $3.18 per pound in second-quarter 2010, compared with our average realized price of $3.06 per pound. At June 30, 2010, we had provisionally priced copper sales at our copper mining operations totaling 364 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $2.95 per pound, subject to final pricing over the next several months. We estimate that each $0.05 change from the June 30, 2010, average price for provisionally priced copper sales would have a net impact on our 2010 consolidated revenues of approximately $24 million ($12 million to net income attributable to FCX common stockholders). The LME spot copper price closed at $3.26 per pound on July 30, 2010.

In April 2009, we entered into forward sales contracts on certain of PT Freeport Indonesia’s provisionally priced copper sales at March 31, 2009, which final priced from April 2009 through July 2009 (refer to Note 7 for further discussion).

Production and Delivery Costs
Consolidated production and delivery costs totaled $2.1 billion in second-quarter 2010 and $4.0 billion for the first six months of 2010, compared with $1.8 billion in second-quarter 2009 and $3.4 billion for the first six months of 2009. The increase in consolidated production and delivery costs in the 2010 periods primarily reflected higher costs of concentrate purchases at Atlantic Copper associated with higher copper prices and higher commodity-based input costs at our mining operations.

Our copper mining operations require a significant amount of energy, principally electricity, diesel, coal and natural gas. For the year 2010, we expect energy costs (including Africa mining) to approximate 20 percent of our consolidated copper production costs, which reflects purchases of approximately 220 million gallons of diesel fuel; 6,200 gigawatt hours of electricity at our North America, South America and Africa copper mining operations (we generate all of our power at our Indonesia mining operation); 800 thousand metric tons of coal for our coal power plant in Indonesia; and 1 million MMBTU (million british thermal units) of natural gas at certain of our North America mines. Energy costs for 2009, which excluded Africa mining, approximated 20 percent of our consolidated copper production costs.
 
Consolidated site production and delivery costs for our copper mining operations, excluding net noncash and other costs, averaged $1.41 per pound of copper in second-quarter 2010 and $1.38 per pound for the first six months of 2010, compared with $1.04 per pound of copper in second-quarter 2009 and $1.05 per pound of copper for the first six months of 2009. Higher site production and delivery costs in the 2010 periods primarily reflected lower copper sales volumes at Grasberg and South America. Refer to “Operations – Unit Net Cash Costs” for further discussion of unit net cash costs associated with our operating divisions, and to “Product Revenues and Production Costs” for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements.

Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense totaled $249 million in second-quarter 2010 and $520 million for the first six months of 2010, compared with $256 million in second-quarter 2009 and $488 million for the first six months of 2009. Consolidated depreciation, depletion and amortization for the 2010 periods reflected lower expense under the unit-of-production method, offset by higher expense at our Tenke Fungurume mine, which commenced initial copper production in March 2009.

Lower of Cost or Market (LCM) Inventory Adjustments
Inventories are required to be recorded at the lower of cost or market. In first-quarter 2009, we recognized charges totaling $19 million ($19 million to net income attributable to FCX common stockholders or $0.05 per share) for LCM inventory adjustments associated with our molybdenum inventories.

Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled $101 million in second-quarter 2010 and $196 million for the first six months of 2010, compared with $89 million in second-quarter 2009 and $151 million for the first six months of 2009. Selling, general and administrative expenses for the 2010 periods reflected higher incentive compensation costs and charges associated with relocating our corporate offices.

Exploration and Research Expenses
Consolidated exploration and research expenses totaled $38 million in second-quarter 2010 and $69 million for the first six months of 2010, compared with $24 million in second-quarter 2009 and $54 million for the first six months of 2009. Exploration activities are being conducted near our existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large mineral districts where we currently operate. Significantly expanded drilling activities in recent years have been successful in generating reserve additions and in identifying potential additional mineral resources adjacent to existing ore bodies. Results indicate opportunities for future potential reserve additions at Morenci, Sierrita and Bagdad in North America, at Cerro Verde and El Abra in South America and in the Tenke Fungurume district.

For the year 2010, exploration spending is expected to approximate $120 million. Exploration activities will continue to focus primarily on the potential in our existing mineral districts.

Restructuring and Other Charges
For the first six months of 2009, we recognized net charges of $23 million ($22 million to net income attributable to FCX common stockholders or $0.05 per share) associated with revised operating plans, including contract termination costs, other project cancellation costs and charges for employee severance and benefits, partially offset by gains for pension and postretirement special benefits and curtailments.

Interest Expense, Net
Consolidated interest expense (before capitalization) totaled $132 million in second-quarter 2010 and $283 million for the first six months of 2010, compared with $172 million in second-quarter 2009 and $348 million for the first six months of 2009. Lower interest expense in the 2010 periods primarily reflected the impact of debt repayments during 2009 and the first half of 2010.

Capitalized interest decreased to $10 million in second-quarter 2010 and $16 million for the first six months of 2010, compared with $14 million in second-quarter 2009 and $59 million for the first six months of 2009, primarily reflecting the completion of development activities for the initial project at our Tenke Fungurume mine, which commenced initial copper production in March 2009.
 
Losses on Early Extinguishment of Debt
We recorded losses on early extinguishment of debt totaling $50 million ($42 million to net income attributable to FCX common stockholders or $0.09 per share) in second-quarter 2010 and $77 million ($65 million to net income attributable to FCX common stockholders or $0.14 per share) for the first six months of 2010 associated with the redemption of our Senior Floating Rate Notes and open-market purchases of our 8.25% and 8.375% Senior Notes. Refer to Note 6 for further discussion.

Provision for Income Taxes
Our income tax provision for second-quarter 2010 resulted from taxes on international operations ($382 million) and U.S. operations ($51 million). Our income tax provision for the first six months of 2010 resulted from taxes on international operations ($979 million) and U.S. operations ($132 million). As presented in the table below, our consolidated effective income tax rate was 35 percent for the first six months of 2010.

Our income tax provision for second-quarter 2009 resulted from taxes on international operations ($538 million) and U.S. operations ($4 million). Our income tax provision for the first six months of 2009 resulted from taxes on international operations ($868 million) and U.S. operations ($5 million). During the first half of 2009, we did not record a benefit for losses generated in the U.S., and those losses could not be used to offset income generated from international operations. These factors combined with the high proportion of income earned in Indonesia, which was taxed at an effective tax rate of 43 percent, caused our consolidated effective income tax rate of 47 percent for the first six months of 2009, to be higher than the U.S. federal statutory rate of 35 percent.

A summary of the approximate amounts in the calculation of our consolidated provision for income taxes for the first six months of 2010 and 2009 follows (in millions, except percentages):

   
Six Months Ended
 
Six Months Ended
 
   
June 30, 2010
 
June 30, 2009
 
             
Income Tax
           
Income Tax
 
   
Income
   
Effective
 
(Provision)
 
Income
   
Effective
 
(Provision)
 
   
(Loss) a
   
Tax Rate
 
Benefit
 
(Loss) a
   
Tax Rate
 
Benefit
 
U.S.
 
$
586
   
 23%
 
$
(132
)
$
(318
)
 
(2)%
 
$
(5
)
South America
   
1,022
   
32%
   
(331
)
 
694
   
32%
   
(221
)
Indonesia
   
1,349
   
42%
   
(570
)
 
1,759
   
43%
   
(749
)
Africa
   
142
   
30%
   
(43
)
 
(86
)
 
30%
   
26
 
Eliminations and other
   
50
   
N/A
   
(24
)
 
(175
)
 
N/A
   
56
 
Annualized rate adjustment b
   
N/A
   
N/A
   
(11
)
 
N/A
   
N/A
   
20
 
Consolidated FCX
 
$
3,149
   
35% c
 
$
(1,111
)
$
1,874
   
47%
 
$
(873
)
 
a.  
Represents income (loss) by geographic location before income taxes and equity in affiliated companies’ net earnings.
 
b.  
In accordance with applicable accounting rules, we adjust our interim provision for income taxes to equal our estimated annualized tax rate.
 
c.  
Our estimated consolidated effective tax rate for the year 2010 will vary with commodity price changes and the mix of income from international and U.S. operations. Assuming average prices of $3.00 per pound of copper, $1,200 per ounce of gold and $14 per pound of molybdenum for the remainder of 2010 and current 2010 sales volume and cost estimates, we estimate our annual consolidated effective tax rate will approximate 36 percent.

OPERATIONS

North America Copper Mines
We currently have six operating copper mines in North America – Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone in New Mexico. All of these mining operations are wholly owned, except for Morenci, an unincorporated joint venture, in which we own an 85 percent undivided interest.

The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/electrowinning (SX/EW) operations. In addition to copper, the Sierrita and Bagdad mines produce molybdenum as a by-product . A majority of the copper produced at our North America copper mines is cast into copper rod by our Rod & Refining operations. The remainder of our North America copper sales is primarily in the form of copper cathode or copper concentrate. Refer to Note 11 for further discussion of our reportable segment in the North America copper mines division.
 
Operating and Development Activities. We have restarted the Morenci mill and have commenced a staged ramp up of Morenci’s mining rates. We have also resumed certain project development activities, including restarting the Miami mine and construction on the sulphur burner at Safford. Operating plans for the North America copper mines continue to be reviewed and adjustments will be made based on market conditions.

Morenci Mill Restart and Mine Ramp-up. In March 2010, we restarted the Morenci mill to process available sulfide material currently being mined. Mill throughput averaged 28,000 metric tons of ore per day during the second quarter of 2010 and is expected to increase to approximately 50,000 metric tons per day by 2011. We have also commenced a staged ramp up at the Morenci mine from the current rate of 450,000 metric tons per day to 635,000 metric tons per day. These activities are expected to expose additional ore and enable Morenci’s annual copper production to increase by approximately 125 million pounds, beginning in 2011. Further increases to Morenci’s mining rate are being evaluated.

Miami Restart. We have initiated limited mining activities at the Miami mine to improve efficiencies of ongoing reclamation projects associated with historical mining operations at the site. During an approximate five-year mine life, we expect to ramp up production at Miami to approximately 100 million pounds of copper per year by the second half of 2011. We are investing approximately $40 million for this project, which is benefiting from the use of existing mining equipment.

Safford Sulphur Burner. We are advancing plans to construct a sulphur burner at the Safford mine, which will provide a more cost effective source of sulphuric acid used in SX/EW operations and lower transportation costs. This project is expected to be complete during 2011 at a capital investment of approximately $150 million.

Chino Restart . We are evaluating the restart of mining and milling activities at the Chino mine, which were suspended in late 2008. The preliminary economics of the project appear attractive and would increase copper production by approximately 150 million to 200 million pounds per year. As reported in our annual report on Form 10-K for the year ended December 31, 2009, Chino’s reserves, excluding metal in stockpiles, totaled 1.1 billion pounds of copper (determined using a long-term average copper price of $1.60 per pound).

Twin Buttes Acquisition. In December 2009, we purchased the Twin Buttes copper mine, which ceased operations in 1994, and is adjacent to our Sierrita mine. The purchase provides significant synergies in the Sierrita minerals district, including the potential for expanded mining activities and access to material that can be used for Sierrita tailings and stockpile reclamation purposes. Studies have commenced to incorporate the Twin Buttes resources in our development plans.
 
Operating Data. Following is summary operating data for the North America copper mines for the second quarters and first six months of 2010 and 2009:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Operating Data, Net of Joint Venture Interest
                         
Copper (millions of recoverable pounds)
                         
Production
   
263
   
272
   
527
   
561
 
Sales, excluding purchases
   
289
   
281
   
580
   
582
 
Average realized price per pound
 
$
3.21
 
$
2.18
 
$
3.27
 
$
1.88
 
                           
Molybdenum (millions of recoverable pounds)
                         
Production a
   
5
   
7
   
11
   
13
 
                           
100% Operating Data
                         
SX/EW operations
                         
Leach ore placed in stockpiles (metric tons per day)
   
646,100
   
553,700
   
624,100
   
611,200
 
Average copper ore grade (percent)
   
0.25
   
0.31
   
0.25
   
0.30
 
Copper production (millions of recoverable pounds)
   
182
   
201
   
384
   
423
 
                           
Mill operations
                         
Ore milled (metric tons per day)
   
195,300
   
170,600
   
179,200
   
175,700
 
Average ore grade (percent):
                         
Copper
   
0.32
   
0.31
   
0.31
   
0.33
 
Molybdenum
   
0.02
   
0.03
   
0.02
   
0.03
 
Copper recovery rate (percent)
   
81.4
   
84.8
   
83.3
   
85.3
 
Production (millions of recoverable pounds):
                         
Copper
   
100
   
89
   
180
   
177
 
Molybdenum
   
5
   
7
   
11
   
13
 
 
a.  
Reflects by-product molybdenum production from the North America copper mines. Sales of by-product molybdenum are reflected in the Molybdenum division.

Copper sales volumes from our North America copper mines totaled 289 million pounds in second-quarter 2010 and 580 million pounds for the first six months of 2010, compared with copper sales volumes of 281 million pounds in second-quarter 2009 and 582 million pounds for the first six months of 2009.

Consolidated sales volumes from our North America copper mines are expected to approximate 1.1 billion pounds of copper for the year 2010, compared with 1.2 billion pounds of copper in 2009. As discussed above in “Operating and Development Activities,” we are increasing mining and milling rates at the Morenci mine and restarting the Miami mine, which are expected to result in higher production in future periods.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with generally accepted accounting principles (GAAP) in the U.S. and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.
 
Gross Profit per Pound of Copper and Molybdenum

The following tables summarize unit net cash costs and gross profit per pound of copper and molybdenum at the North America copper mines for the second quarters and first six months of 2010 and 2009. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs to production and delivery costs applicable to sales reported in our consolidated financial statements.

 
Three Months Ended
June 30, 2010
 
Three Months Ended
June 30, 2009
 
 
By-
 
Co-Product Method
 
By-
 
Co-Product Method
 
 
Product
       
Molyb-
 
Product
       
Molyb-
 
 
Method
 
Copper
 
denum a
 
Method
 
Copper
 
denum a
 
Revenues, excluding adjustments
$
3.21
 
$
3.21
 
$
17.34
 
$
2.18
 
$
2.18
 
$
8.43
 
                                     
Site production and delivery, before net noncash
                                   
and other costs shown below
 
1.46
   
1.31
   
8.55
   
1.24
   
1.13
   
5.34
 
By-product credits a
 
(0.38
)
 
–
   
–
   
(0.21
)
 
–
   
–
 
Treatment charges
 
0.09
   
0.08
   
–
   
0.09
   
0.08
   
–
 
Unit net cash costs
 
1.17
   
1.39
   
8.55
   
1.12
   
1.21
   
5.34
 
Depreciation, depletion and amortization
 
0.23
   
0.22
   
0.64
   
0.21
   
0.21
   
0.36
 
Noncash and other costs, net
 
0.19
   
0.18
   
0.04
   
0.15
   
0.14
   
0.04
 
Total unit costs
 
1.59
   
1.79
   
9.23
   
1.48
   
1.56
   
5.74
 
Revenue adjustments, primarily for hedging
 
–
   
–
   
–
   
0.06
   
0.06
   
–
 
Idle facility and other non-inventoriable costs
 
(0.08
)
 
(0.08
)
 
(0.01
)
 
(0.08
)
 
(0.08
)
 
–
 
Gross profit per pound
$
1.54
 
$
1.34
 
$
8.10
 
$
0.68
 
$
0.60
 
$
2.69
 
                                     
Copper sales (millions of recoverable pounds)
 
288
   
288
         
281
   
281
       
Molybdenum sales (millions of recoverable pounds) b
             
5
               
7
 
 

 
Six Months Ended
June 30, 2010
 
Six Months Ended
June 30, 2009
 
 
By-
 
Co-Product Method
 
By-
 
Co-Product Method
 
 
Product
       
Molyb-
 
Product
       
Molyb-
 
 
Method
 
Copper
 
denum a
 
Method
 
Copper
 
denum a
 
Revenues, excluding adjustments
$
3.27
 
$
3.27
 
$
15.71
 
$
1.88
 
$
1.88
 
$
9.02
 
                                     
Site production and delivery, before net noncash
                                   
and other costs shown below
 
1.39
   
1.25
   
8.00
   
1.28
   
1.19
   
4.85
 
By-product credits a
 
(0.32
)
 
–
   
–
   
(0.19
)
 
–
   
–
 
Treatment charges
 
0.08
   
0.08
   
–
   
0.08
   
0.08
   
–
 
Unit net cash costs
 
1.15
   
1.33
   
8.00
   
1.17
   
1.27
   
4.85
 
Depreciation, depletion and amortization
 
0.25
   
0.24
   
0.63
   
0.23
   
0.22
   
0.29
 
Noncash and other costs, net
 
0.13
   
0.13
   
0.05
   
0.15
   
0.15
   
0.10
 
Total unit costs
 
1.53
   
1.70
   
8.68
   
1.55
   
1.64
   
5.24
 
Revenue adjustments, primarily for hedging
 
–
   
–
   
–
   
0.15
   
0.15
   
–
 
Idle facility and other non-inventoriable costs
 
(0.08
)
 
(0.08
)
 
(0.01
)
 
(0.10
)
 
(0.11
)
 
–
 
Gross profit per pound
$
1.66
 
$
1.49
 
$
7.02
 
$
0.38
 
$
0.28
 
$
3.78
 
                                     
Copper sales (millions of recoverable pounds)
 
579
   
579
         
582
   
582
       
Molybdenum sales (millions of recoverable pounds) b
             
11
               
13
 
 
a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Reflects molybdenum produced by the North America copper mines.

Unit net cash costs (net of by-product credits) for our North America copper mines were $1.17 per pound of copper in second-quarter 2010 and $1.15 per pound of copper for the first six months of 2010, compared with $1.12 per pound of copper in second-quarter 2009 and $1.17 per pound of copper for the first six months of 2009. Unit net cash costs for the 2010 periods reflected higher site production and delivery costs ($0.22 per pound for the quarter and $0.11 per pound for the six month period) primarily associated with higher input costs from increased mining and milling activities. Offsetting these higher costs were higher molybdenum credits ($0.17 per pound for the quarter and $0.13 per pound for the six month period) resulting from higher molybdenum prices.
 
Some of our U.S. copper rod customers request a fixed market price instead of the COMEX average price in the month of shipment. We hedge this price exposure in a manner that allows us to receive market prices in the month of shipment while the customer pays the fixed price they requested. Because these contracts previously did not meet the criteria to qualify for hedge accounting, revenue adjustments in second-quarter and the first six months of 2009 primarily reflect unrealized gains on these copper derivative contracts.

Our operating North America copper mines have varying cost structures because of differences in ore grades and ore characteristics, processing costs, by-products and other factors. Based on current operating plans and assuming achievement of current 2010 sales volume and cost estimates and an average price of $14 per pound of molybdenum for the remainder of 2010, we estimate that average unit net cash costs (net of by-product credits) for our North America copper mines would approximate $1.24 per pound of copper for the year 2010, compared with $1.11 per pound in 2009. Each $2 per pound change in the average price of molybdenum during the remainder of 2010 would have an approximate $0.02 per pound impact on the North America copper mines’ 2010 unit net cash costs.

South America Mining
We have four operating copper mines in South America – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. We own a 53.56 percent interest in Cerro Verde, an 80 percent interest in both Candelaria and Ojos del Salado and a 51 percent interest in El Abra.

South America mining includes open-pit and underground mines, sulfide ore concentrating, leaching and SX/EW operations. In addition to copper, the Cerro Verde mine produces molybdenum concentrates as a by-product, and the Candelaria and Ojos del Salado mines produce gold and silver as by-products. Production from our South America mines is sold as copper concentrate or copper cathode under long-term contracts. Our South America mines sell a portion of their copper concentrate and cathode inventories to Atlantic Copper, an affiliated smelter. Refer to Note 11 for further discussion of our reportable segment in the South America mining division.

Operating and Development Activities. The molybdenum circuit at Cerro Verde, which had been temporarily curtailed, resumed operations in September 2009. We have also resumed certain project development activities, including the El Abra sulfide project and the Cerro Verde mill optimization project.

El Abra Sulfide. We are engaged in construction activities associated with the development of a large sulfide deposit at El Abra to extend its mine life by over 10 years. Production from the sulfide ore, which will ramp up to approximately 300 million pounds of copper per year, is expected to begin in 2012 and will replace currently depleting oxide copper production. The aggregate capital investment for this project is expected to total $725 million through 2015, of which approximately $535 million is for the initial phase of the project expected to be completed in 2012. Aggregate project costs of $190 million have been incurred as of June 30, 2010, $115 million of which has been incurred during the first six months of 2010.

We have also initiated studies for a potential milling operation at El Abra to process additional sulfide material and to achieve higher recoveries.

Cerro Verde Expansion. We are completing a project to optimize throughput at the existing Cerro Verde concentrator. This project, which is expected to be completed by the end of 2010, is designed to add 30 million pounds of additional copper production per year by increasing mill throughput from 108,000 metric tons of ore per day to 120,000 metric tons of ore per day. The aggregate capital investment for this project is expected to total approximately $50 million.

In addition, we are evaluating the potential for a large scale concentrator expansion at Cerro Verde. Reserve additions in recent years have provided opportunities to potentially more than double the existing facility’s capacity. A feasibility study is expected to be completed in the first half of 2011.

Other Matters. As reported in Note 14 of our report on Form 10-K for the year ended December 31, 2009, Cerro Verde was notified by SUNAT, the Peruvian national tax authority, of its intent to assess mining royalties related to the minerals processed by the Cerro Verde concentrator, which was added to Cerro Verde’s processing facilities in late 2006. In August 2009, Cerro Verde received a formal assessment approximating $50 million in connection with its alleged obligations for mining royalties and fines for the period from October 2006 through December 2007. In April 2010, SUNAT issued a ruling denying Cerro Verde’s protest of the assessment; Cerro Verde plans
 
to appeal this decision.  Also, in April 2010, Cerro Verde received a formal assessment approximating $40 million in royalties for the year 2008.

Cerro Verde is challenging these royalties because its stability agreement with the Peruvian government exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. No amounts have been accrued for this contingency. If Cerro Verde is ultimately found responsible for those royalties, it will also be liable for interest, which accrues at rates that range from 6 to 18 percent based on the year accrued and the currency in which the amounts would be payable.

In April 2010, there was a major earthquake in Chile that resulted in significant damages in certain regions of the country. The Chilean government proposed a temporary increase in mining royalties to help fund reconstruction activities, but it was rejected by the Chilean congress in July 2010. We will continue to monitor the activity associated with these proposals and their potential impact on our financial results.

Operating Data. Following is summary operating data for our South America mining operations for the second quarters and first six months of 2010 and 2009:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
                           
Copper (millions of recoverable pounds)
                         
Production
   
329
   
358
   
651
   
706
 
Sales
   
311
   
363
   
618
   
713
 
Average realized price per pound
 
$
3.02
 
$
2.22
 
$
3.07
 
$
2.10
 
                           
Gold (thousands of recoverable ounces)
                         
Production
   
20
   
24
   
39
   
47
 
Sales
   
20
   
25
   
39
   
48
 
Average realized price per ounce
 
$
1,221
 
$
928
 
$
1,175
 
$
915
 
                           
Molybdenum (millions of recoverable pounds)
                         
Production a
   
1
   
–
   
3
   
1
 
                           
SX/EW operations
                         
Leach ore placed in stockpiles (metric tons per day)
   
247,400
   
260,200
   
251,600
   
255,400
 
Average copper ore grade (percent)
   
0.42
   
0.44
   
0.43
   
0.45
 
Copper production (millions of recoverable pounds)
   
130
   
141
   
263
   
278
 
                           
Mill operations
                         
Ore milled (metric tons per day)
   
187,100
   
186,300
   
183,600
   
184,400
 
Average ore grade (percent): b
                         
Copper
   
0.62
   
0.67
   
0.62
   
0.68
 
Molybdenum
   
0.02
   
0.02
   
0.02
   
0.02
 
Copper recovery rate (percent)
   
89.9
   
90.2
   
89.5
   
89.6
 
Production (recoverable):
                         
Copper (millions of pounds)
   
199
   
217
   
388
   
428
 
Gold (thousands of ounces)
   
20
   
24
   
39
   
47
 
Molybdenum (millions of pounds)
   
1
   
–
   
3
   
1
 
 
a.  
Reflects by-product molybdenum production from our Cerro Verde copper mine. Sales of by-product molybdenum are reflected in the Molybdenum division.
 
b.  
Average ore grades of gold produced at our South America mining operations rounds to less than 0.001 grams per metric ton.

Copper sales from our South America mining operations decreased to 311 million pounds in second-quarter 2010 and 618 million pounds for the first six months of 2010, compared with 363 million pounds in second-quarter 2009 and 713 million pounds for the first six months of 2009. These decreases primarily reflected lower ore grades at  Candelaria and timing of shipments at Cerro Verde.

Consolidated sales volumes from South America mining are expected to approximate 1.3 billion pounds of copper and 100 thousand ounces of gold for the year 2010, compared with 1.4 billion pounds of copper and 90 thousand ounces of gold in 2009. Projected copper sales volumes for 2010 are lower than 2009 primarily reflecting
 
anticipated lower ore grades, principally at El Abra in connection with the depletion of the oxide ore resource and the transition to the sulfide deposit.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.
 
Gross Profit per Pound of Copper

The following tables summarize unit net cash costs and gross profit per pound of copper at the South America mining operations for the second quarters and first six months of 2010 and 2009. Unit net cash costs per pound of copper are reflected under the by-product and co-product methods as the South America mining operations also had small amounts of molybdenum, gold and silver sales. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs to production and delivery costs applicable to sales reported in our consolidated financial statements.

 
Three Months Ended
June 30, 2010
 
Three Months Ended
June 30, 2009
 
 
By-Product
 
Co-Product
 
By-Product
 
Co-Product
 
 
Method
 
Method
 
Method
 
Method
 
Revenues, excluding adjustments
$
3.02
 
$
3.02
 
$
2.22
 
$
2.22
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
1.22
   
1.14
   
1.00
   
0.95
 
By-product credits
 
(0.19
)
 
–
   
(0.10
)
 
–
 
Treatment charges
 
0.11
   
0.11
   
0.15
   
0.15
 
Unit net cash costs
 
1.14
   
1.25
   
1.05
   
1.10
 
Depreciation, depletion and amortization
 
0.19
   
0.18
   
0.19
   
0.19
 
Noncash and other costs, net
 
0.02
   
0.02
   
(0.01
)
 
–
 
Total unit costs
 
1.35
   
1.45
   
1.23
   
1.29
 
Revenue adjustments, primarily for pricing on
                       
prior period open sales
 
(0.37
)
 
(0.37
)
 
0.26
   
0.26
 
Other non-inventoriable costs
 
(0.02
)
 
(0.02
)
 
(0.02
)
 
(0.01
)
Gross profit per pound
$
1.28
 
$
1.18
 
$
1.23
 
$
1.18
 
                         
Copper sales (millions of recoverable pounds)
 
311
   
311
   
363
   
363
 

 
Six Months Ended
June 30, 2010
 
Six Months Ended
June 30, 2009
 
 
By-Product
 
Co-Product
 
By-Product
 
Co-Product
 
 
Method
 
Method
 
Method
 
Method
 
Revenues, excluding adjustments
$
3.07
 
$
3.07
 
$
2.10
 
$
2.10
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
1.21
   
1.14
   
1.00
   
0.94
 
By-product credits
 
(0.18
)
 
–
   
(0.11
)
 
–
 
Treatment charges
 
0.13
   
0.13
   
0.15
   
0.14
 
Unit net cash costs
 
1.16
   
1.27
   
1.04
   
1.08
 
Depreciation, depletion and amortization
 
0.19
   
0.18
   
0.19
   
0.18
 
Noncash and other costs, net
 
0.01
   
0.01
   
–
   
0.01
 
Total unit costs
 
1.36
   
1.46
   
1.23
   
1.27
 
Revenue adjustments, primarily for pricing on
                       
prior period open sales
 
(0.03
)
 
(0.03
)
 
0.15
   
0.15
 
Other non-inventoriable costs
 
(0.02
)
 
(0.02
)
 
(0.03
)
 
(0.02
)
Gross profit per pound
$
1.66
 
$
1.56
 
$
0.99
 
$
0.96
 
                         
Copper sales (millions of recoverable pounds)
 
618
   
618
   
713
   
713
 

Unit net cash costs (net of by-product credits) for our South America mining operations averaged $1.14 per pound of copper in second-quarter 2010 and $1.16 per pound of copper for the first six months of 2010, compared with
 
$1.05 per pound in second-quarter 2009 and $1.04 per pound for the first six months of 2009. The increase in unit net cash costs in the 2010 periods primarily reflected higher site production and delivery costs ($0.22 per pound for the quarter and $0.21 per pound for the six-month period) mostly associated with lower sales volumes. Partly offsetting higher site production and delivery costs were higher by-product credits ($0.09 per pound for the quarter and $0.07 per pound for the six-month period) primarily associated with higher gold and molybdenum prices, and lower treatment charges ($0.04 per pound for the quarter and $0.02 per pound for the six-month period).

Our South America mines have varying cost structures because of differences in ore grades and ore characteristics, processing costs, by-products and other factors. Assuming achievement of current 2010 sales volume and cost estimates, we estimate that average unit net cash costs (net of by-product credits) for our South America mining operations would approximate $1.18 per pound of copper in 2010, compared with $1.12 per pound in 2009.

Indonesia Mining
Indonesia mining includes PT Freeport Indonesia’s Grasberg minerals district. We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama.

PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and silver. Substantially all of PT Freeport Indonesia’s copper concentrates are sold under long-term contracts, of which approximately one-half is sold to affiliated smelters, Atlantic Copper and PT Smelting (PT Freeport Indonesia’s 25-percent owned copper smelter and refinery in Indonesia) and the remainder to other customers.

We have established certain unincorporated joint ventures with Rio Tinto plc (Rio Tinto), under which Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver.

Development Activities. We have several projects in progress in the Grasberg minerals district, including development of the large-scale, high-grade underground ore bodies located beneath and adjacent to the Grasberg open pit. Based on current estimates, for the years 2010 to 2014 we expect aggregate expenditures for underground mine development in the Grasberg minerals district to average $525 million per year. These costs will be shared with Rio Tinto in accordance with our joint venture agreement. Considering the long-term nature and large size of these projects, actual costs could differ materially from these estimates.

In addition to the underground mine development costs, our current mine development plans include approximately $3 billion of capital expenditures at our processing facilities to optimize the handling of underground ore types once Grasberg open-pit operations cease. Substantially all of these expenditures will be made between 2017 and 2029. We continue to review our mine development and processing plans to maximize the value of our reserves.

The following discussion provides additional information on our current Indonesia mining projects, including the continued development of the Common Infrastructure project, the Grasberg Block Cave and Big Gossan underground mines, a further expansion of the Deep Ore Zone (DOZ) underground mine and development of the Deep Mill Level Zone (DMLZ) ore body.

Common Infrastructure and Grasberg Block Cave. In 2004, PT Freeport Indonesia commenced its Common Infrastructure project to provide access to its large undeveloped underground ore bodies located in the Grasberg minerals district through a tunnel system located approximately 400 meters deeper than its existing underground tunnel system. In addition to providing access to our underground ore bodies, the tunnel system will enable PT Freeport Indonesia to conduct future exploration in prospective areas associated with currently identified ore bodies. The tunnel system has reached the Big Gossan terminal and we are proceeding with development of the lower Big Gossan infrastructure. We have also advanced development of the Grasberg spur and have completed the tunneling required to reach the Grasberg underground ore body. During second-quarter 2010, we continued development of the Grasberg Block Cave terminal infrastructure and mine access. The DMLZ spur has reached the DMLZ terminal area and development continues on terminal infrastructure and mine access.

In 2008, we completed the feasibility study for the development of the Grasberg Block Cave underground mine, which accounts for over one-third of our reserves in Indonesia. Production at the Grasberg Block Cave mine is currently scheduled to commence at the end of mining the Grasberg open pit, which is expected to continue until mid-2016. The timing of the underground Grasberg Block Cave mine development will continue to be assessed.
 
Based on the 2008 feasibility study, aggregate mine development capital for the Grasberg Block Cave mine and associated Common Infrastructure is expected to approximate $3.6 billion, which are expected to be incurred between 2008 and 2021, with PT Freeport Indonesia’s share totaling approximately $3.4 billion. Aggregate project costs totaling $193 million have been incurred through June 30, 2010, of which $66 million was incurred during the first six months of 2010. Targeted production rates once the Grasberg Block Cave mining operation reaches full capacity are expected to approximate 160,000 metric tons of ore per day.

Big Gossan. The Big Gossan underground mine is a high-grade deposit located near PT Freeport Indonesia’s existing milling complex. The Big Gossan mine is being developed as an open-stope mine with backfill consisting of mill tailings and cement, an established mining methodology expected to be higher cost than the block-cave method used at the DOZ mine. Production is designed to ramp up to 7,000 metric tons of ore per day by late 2012 (equal to average annual aggregate incremental production of 125 million pounds of copper and 65,000 ounces of gold, with PT Freeport Indonesia receiving 60 percent of these amounts). The aggregate capital investment for this project is currently estimated at approximately $535 million, of which $412 million has been incurred through June 30, 2010.

DOZ Expansion. In mid-2007, PT Freeport Indonesia completed an expansion of the DOZ underground operation to allow a sustained rate of 50,000 metric tons of ore per day. PT Freeport Indonesia’s further expansion of the DOZ mine to 80,000 metric tons of ore per day is complete. The capital cost for this expansion approximated $100 million, with PT Freeport Indonesia’s 60 percent share totaling approximately $60 million. The success of the development of the DOZ mine, one of the world’s largest underground mines, provides confidence in the future development of PT Freeport Indonesia’s large-scale undeveloped underground ore bodies.

DMLZ. The DMLZ ore body lies below the DOZ mine at the 2,590-meter elevation and represents the downward continuation of mineralization in the Ertsberg East Skarn system and neighboring Ertsberg porphyry. The DMLZ feasibility study was completed in fourth-quarter 2009. We plan to mine the ore body using a block-cave method with production beginning in 2015, near completion of mining at the DOZ. Drilling efforts continue to determine the extent of this ore body. We continue to develop the Common Infrastructure project and tunnels from mill level. In 2009, we completed a portion of the spur to the DMLZ mine and reached the edge of the DMLZ terminal. Aggregate mine development capital costs for the DMLZ are expected to approximate $2.1 billion with PT Freeport Indonesia’s share totaling approximately $1.2 billion, which are expected to be incurred from 2009 to 2020. Aggregate project costs totaling $66 million have been incurred through June 30, 2010, including $41 million during the first six months of 2010. Targeted production rates once the DMLZ mining operation reaches full capacity are expected to approximate 80,000 metric tons of ore per day.

Other Matters. Since July 2009, there have been a series of shooting incidents along the road leading to our mining and milling operations at the Grasberg minerals district (there have been no shooting incidents since January 2010). In connection with these incidents there were three fatalities in July 2009, and there have been a number of injuries. The Indonesian government has responded with additional security forces and expressed a strong commitment to protect the safety of the community and our operations. The investigation of these matters is continuing, and we have taken precautionary measures, including limiting use of the road to secured convoys. Our mining and milling activities have continued uninterrupted; however, prolonged limitations on access to the road could adversely affect operations at the mine. See “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2009, for further discussion of these matters.
 
Operating Data. Following is summary operating data for our Indonesia mining operations for the second quarters and first six months of 2010 and 2009:
   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Consolidated Operating Data, Net of Joint Venture Interest
                         
Copper (millions of recoverable pounds)
                         
Production
   
276
   
403
   
555
   
807
 
Sales
   
259
   
432
   
555
   
801
 
Average realized price per pound
 
$
2.95
 
$
2.24
 
$
3.05
 
$
2.06
 
                           
Gold (thousands of recoverable ounces)
                         
Production
   
294
   
778
   
723
   
1,348
 
Sales
   
276
   
811
   
734
   
1,332
 
Average realized price per ounce
 
$
1,235
 
$
932
 
$
1,171
 
$
919
 
                           
100% Operating Data
                         
Ore milled (metric tons per day):
                         
Grasberg open pit a
   
145,400
   
165,300
   
150,200
   
165,200
 
DOZ underground mine a
   
78,000
   
72,400
   
78,500
   
72,400
 
Total
   
223,400
   
237,700
   
228,700
   
237,600
 
Average ore grade:
                         
Copper (percent)
   
0.81
   
1.10
   
0.79
   
1.11
 
Gold (grams per metric ton)
   
0.63
   
1.51
   
0.75
   
1.32
 
Recovery rates (percent):
                         
Copper
   
89.1
   
90.6
   
88.7
   
90.6
 
Gold
   
78.2
   
83.6
   
78.7
   
82.9
 
Production (recoverable):
                         
Copper (millions of pounds)
   
305
   
457
   
613
   
913
 
Gold (thousands of ounces)
   
319
   
849
   
785
   
1,468
 
 
a.  
Amounts represent the approximate average daily throughput processed at PT Freeport Indonesia’s mill facilities from each producing mine.

At the Grasberg mine, the sequencing in mining areas with varying ore grades causes fluctuations in the timing of ore production resulting in varying quarterly and annual sales of copper and gold. As expected, PT Freeport Indonesia’s share of sales decreased to 259 million pounds of copper and 276 thousand ounces of gold in second-quarter 2010 and 555 million pounds of copper and 734 thousand ounces of gold for the first six months of 2010, compared with 432 million pounds of copper and 811 thousand ounces of gold in second-quarter 2009 and 801 million pounds of copper and 1.3 million ounces of gold for the first six months of 2009, as a result of sequencing of mining in a lower ore-grade section of the Grasberg open pit.

Anticipated changes in ore grade throughout the year are expected to result in significant variability in quarterly volumes, with higher copper and gold grades expected beginning in fourth-quarter 2010. For the year 2010, PT Freeport Indonesia’s sales are expected to approximate 1.2 billion pounds of copper and 1.7 million ounces of gold, compared with 1.4 billion pounds of copper and 2.5 million ounces of gold in 2009.

In July 2010, we revised PT Freeport Indonesia’s mine plans to incorporate precautionary remedial activities and geotechnical considerations which will affect mining of a relatively high-grade section of the Grasberg open pit by deferring some production to later periods. These revised plans, which are subject to ongoing review and optimization, reflect timing differences and do not result in significant changes to reserves or ultimate production from the open pit.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper/per Ounce of Gold

The following tables summarize the unit net cash costs (credits) and gross profit per pound of copper and per ounce of gold at our Indonesia mining operations for the second quarters and first six months of 2010 and 2009. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs to production and delivery costs applicable to sales reported in our consolidated financial statements.

 
Three Months Ended
June 30, 2010
 
Three Months Ended
June 30, 2009
 
 
By-Product
 
Co-Product Method
 
By-Product
 
Co-Product Method
 
 
Method
 
Copper
 
Gold
 
Method
 
Copper
 
Gold
 
Revenues, excluding adjustments
$
2.95
 
$
2.95
 
$
1,235.26
 
$
2.24
 
$
2.24
 
$
932.32
 
                                     
Site production and delivery, before net noncash
                                   
and other costs shown below
 
1.62
   
1.10
   
474.65
   
0.93
   
0.52
   
214.22
 
Gold and silver credits
 
(1.41
)
 
–
   
–
   
(1.80
)
 
–
   
–
 
Treatment charges
 
0.26
   
0.18
   
75.18
   
0.22
   
0.12
   
50.10
 
Royalty on metals
 
0.11
   
0.07
   
31.10
   
0.12
   
0.06
   
26.44
 
Unit net cash costs (credits)
 
0.58
   
1.35
   
580.93
   
(0.53
)
 
0.70
   
290.76
 
Depreciation and amortization
 
0.22
   
0.15
   
63.62
   
0.18
   
0.10
   
41.45
 
Noncash and other costs, net
 
0.02
   
0.01
   
6.36
   
0.03
   
0.02
   
6.66
 
Total unit costs (credits)
 
0.82
   
1.51
   
650.91
   
(0.32
)
 
0.82
   
338.87
 
Revenue adjustments, primarily for pricing on
                                   
prior period open sales
 
(0.42
)
 
(0.42
)
 
37.24
   
0.03
   
0.03
   
(4.04
)
PT Smelting intercompany profit
 
0.06
   
0.04
   
18.86
   
(0.07
)
 
(0.04
)
 
(16.23
)
Gross profit per pound/ounce
$
1.77
 
$
1.06
 
$
640.45
 
$
2.52
 
$
1.41
 
$
573.18
 
                                     
Copper sales (millions of recoverable pounds)
 
259
   
259
         
432
   
432
       
Gold sales (thousands of recoverable ounces)
             
276
               
811
 

 
Six Months Ended
June 30, 2010
 
Six Months Ended
June 30, 2009
 
 
By-Product
 
Co-Product Method
 
By-Product
 
Co-Product Method
 
 
Method
 
Copper
 
Gold
 
Method
 
Copper
 
Gold
 
Revenues, excluding adjustments
$
3.05
 
$
3.05
 
$
1,170.67
 
$
2.06
 
$
2.06
 
$
919.28
 
                                     
Site production and delivery, before net noncash
                                   
and other costs shown below
 
1.58
   
1.03
   
397.55
   
0.92
   
0.52
   
233.90
 
Gold and silver credits
 
(1.61
)
 
–
   
–
   
(1.58
)
 
–
   
–
 
Treatment charges
 
0.24
   
0.16
   
60.53
   
0.21
   
0.12
   
53.44
 
Royalty on metals
 
0.11
   
0.08
   
28.90
   
0.09
   
0.05
   
23.48
 
Unit net cash costs (credits)
 
0.32
   
1.27
   
486.98
   
(0.36
)
 
0.69
   
310.82
 
Depreciation and amortization
 
0.22
   
0.14
   
54.28
   
0.18
   
0.10
   
45.11
 
Noncash and other costs, net
 
0.04
   
0.03
   
10.91
   
0.03
   
0.02
   
7.99
 
Total unit costs (credits)
 
0.58
   
1.44
   
552.17
   
(0.15
)
 
0.81
   
363.92
 
Revenue adjustments, primarily for pricing on
                                   
prior period open sales
 
(0.01
)
 
(0.01
)
 
1.82
   
0.07
   
0.07
   
4.12
 
PT Smelting intercompany profit
 
0.05
   
0.04
   
13.05
   
(0.05
)
 
(0.03
)
 
(11.81
)
Gross profit per pound/ounce
$
2.51
 
$
1.64
 
$
633.37
 
$
2.23
 
$
1.29
 
$
547.67
 
                                     
Copper sales (millions of recoverable pounds)
 
555
   
555
         
801
   
801
       
Gold sales (thousands of recoverable ounces)
             
734
               
1,332
 

Because of the fixed nature of a large portion of PT Freeport Indonesia’s costs, unit costs vary significantly from period to period depending on volumes of copper and gold sold during the period. Unit net cash costs (net of gold and silver credits) for PT Freeport Indonesia averaged $0.58 per pound of copper in second-quarter 2010 and $0.32 per pound for the first six months of 2010, compared with net credits of $0.53 per pound in second-quarter 2009 and $0.36 per pound for the first six months of 2009. The increase in unit net cash costs in the 2010 periods primarily reflected higher site production and delivery costs ($0.69 per pound for the quarter and $0.66 per pound for the six-month period) mostly associated with lower copper sales volumes. The quarterly period was also impacted by lower gold credits ($0.39 per pound) as lower gold sales volumes more than offset higher gold prices.
 
Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.

Because certain assets are depreciated on a straight-line basis, PT Freeport Indonesia’s unit depreciation rate varies with the level of copper production and sales.

Assuming achievement of current 2010 sales volume and cost estimates, and an average price of $1,200 per ounce of gold for the remainder of 2010, we estimate that average unit net cash costs for PT Freeport Indonesia (net of gold and silver credits) would approximate $0.14 per pound of copper in 2010, compared with a net credit of $0.49 per pound in 2009. Each $50 per ounce change in the average price of gold during the remainder of 2010 would have an approximate $0.04 per pound impact on PT Freeport Indonesia’s 2010 unit net cash costs.

Africa Mining
Africa mining includes the Tenke copper and cobalt mining concessions in the Katanga province of the DRC. We own an effective 57.75 percent interest in Tenke and are the operator of the project. The Tenke mine includes open-pit mining, leaching and SX/EW operations. Copper production from the Tenke mine is sold as copper cathode. In addition to copper, the Tenke mine produces cobalt hydroxide.

Operating and Development Activities. Construction activities for the initial development project were completed during 2009. Initial copper production commenced in late March 2009, and targeted copper production rates were achieved in September 2009. The cobalt and sulphuric acid plants were commissioned in third-quarter 2009. Start-up and quality issues continue to be addressed in the cobalt circuit and corrective actions will be implemented over the next several quarters. Based on the 10-year average of current design operations, Tenke expects to produce approximately 250 million pounds of copper and 18 million pounds of cobalt per year. However, higher grades of cobalt are expected to result in higher than average annual cobalt production in the initial years.
 
 
The milling facilities at Tenke, which were designed to produce at a capacity rate of 8,000 metric tons of ore per day, have been performing above capacity in recent months. Tenke is procuring additional equipment that will enable additional high-grade material to be mined and processed. As a result of these enhancements to the mine plan and an expected mill throughput rate of 10,000 metric tons of ore per day, we estimate the average annual copper production at Tenke will increase to approximately 290 million pounds of copper during 2011.

We continue to engage in drilling activities, exploration analyses and metallurgical testing to evaluate the potential of this highly prospective minerals district and expect Tenke’s reserves to increase significantly over time. These analyses are being incorporated in future plans to evaluate opportunities for expansion. We are completing studies to evaluate a second phase of the project, which would include optimizing the current plant and increasing capacity. Future expansions are subject to a number of factors, including economic and market conditions and the business and investment climate in the DRC.

Other Matters. We are continuing to work with the DRC government to resolve the ongoing contract review and a number of administrative disputes. We cannot predict the timing or the outcome of these matters. We believe that our mining contract is fair and equitable, complies with Congolese law and is enforceable without modifications. See “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2009, for further discussion of these matters.

We are negotiating the labor agreement covering all national Tenke Fungurume employees, which came up for review in May 2010.
 
Operating Data. Following is summary operating data for our Africa mining operations for the second quarters and first six months of 2010 and 2009:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009 a
 
                           
Copper (millions of recoverable pounds)
                         
Production
   
62
   
36
   
126
   
36
 
Sales
   
55
   
26
   
121
   
26
 
Average realized price per pound
 
$
2.96
 
$
2.20
 
$
3.12
 
$
2.20
 
                           
Cobalt (millions of contained pounds)
                         
Production
   
4
   
N/A
b
 
9
   
N/A
b
Sales
   
4
   
N/A
b
 
7
   
N/A
b
Average realized price per pound
 
$
12.37
   
N/A
b
$
11.91
   
N/A
b
                           
Ore milled (metric tons per day)
   
8,800
   
6,800
   
9,200
   
6,300
 
Average ore grade (percent):
                         
Copper
   
3.87
   
3.45
   
3.78
   
3.21
 
Cobalt
   
0.35
   
N/A
b
 
0.40
   
N/A
b
Copper recovery rate (percent)
   
90.7
   
92.1
   
91.2
   
92.1
 
 
a.  
Represents results since March 2009.
 
b.  
Comparative results for the 2009 periods have not been included as start up activities were still under way.

Consolidated sales volumes from Tenke are expected to approximate 250 million pounds of copper and 20 million pounds of cobalt for the year 2010, compared with 130 million pounds of copper and 3 million pounds of cobalt for 2009.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.
 
Gross Profit per Pound of Copper/per Pound of Cobalt

The following table summarizes the unit net cash costs and gross profit per pound of copper and cobalt at our Africa mining operation for the second quarter and first six months of 2010. Comparative information for the 2009 periods have not been included as start up activities were still under way. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs to production and delivery costs applicable to sales reported in our consolidated financial statements.

 
Three Months Ended
June 30, 2010
 
Six Months Ended
June 30, 2010
 
 
By-Product
 
Co-Product Method
 
By-Product
 
Co-Product Method
 
 
Method
 
Copper
 
Cobalt
 
Method
 
Copper
 
Cobalt
 
Revenues, excluding adjustments
$
2.96
 
$
2.96
 
$
12.37
 
$
3.12
 
$
3.12
 
$
11.91
 
                                     
Site production and delivery, before net noncash
                                   
and other costs shown below
 
1.27
   
1.15
   
6.63
   
1.32
   
1.25
   
5.73
 
Cobalt credits
 
(0.54
) a
 
–
   
–
   
(0.46
) a
 
–
   
–
 
Royalty on metals
 
0.06
   
0.05
   
0.20
   
0.07
   
0.05
   
0.21
 
Unit net cash costs
 
0.79
   
1.20
   
6.83
   
0.93
   
1.30
   
5.94
 
Depreciation, depletion and amortization
 
0.55
   
0.47
   
1.13
   
0.49
   
0.41
   
1.53
 
Noncash and other costs, net
 
0.04
   
0.03
   
0.08
   
0.03
   
0.03
   
0.09
 
Total unit costs
 
1.38
   
1.70
   
8.04
   
1.45
   
1.74
   
7.56
 
Revenue adjustments, primarily for pricing on
                                   
prior period open sales
 
(0.01
)
 
(0.01
)
 
0.35
   
–
   
–
   
0.51
 
Other non-inventoriable costs
 
(0.10
)
 
(0.09
)
 
(0.22
)
 
(0.10
)
 
(0.08
)
 
(0.30
)
Gross profit per pound
$
1.47
 
$
1.16
 
$
4.46
 
$
1.57
 
$
1.30
 
$
4.56
 
                                     
Copper sales (millions of recoverable pounds)
 
55
   
55
         
121
   
121
       
Cobalt sales (millions of contained pounds)
             
4
               
7
 
 
a.  
Net of cobalt downstream processing and freight costs.

Unit net cash costs (net of cobalt credits) for Tenke averaged $0.79 per pound of copper in second-quarter 2010 and $0.93 per pound of copper for the first six months of 2010.

In July 2010, we updated our cost estimates for Tenke to incorporate changes in sulphuric acid consumption and input costs, transportation costs, and increased government fees and administrative costs associated with the complex nature of the operating environment in the DRC. Assuming achievement of 2010 sales volumes, our revised cost estimates and an average cobalt price of $12 per pound for the remainder of 2010 and the year 2011, we estimate that average unit net cash costs for Tenke (net of cobalt credits) would approximate $0.93 per pound of copper for 2010 and $0.80 per pound of copper for the year 2011. Each $2 per pound change in the average price of cobalt would have an approximate $0.10 per pound impact on Tenke’s unit net cash costs.

Molybdenum
Our Molybdenum operation is an integrated producer of molybdenum, with mining, sulfide ore concentrating, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world, and includes the wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. The Molybdenum operation also includes the wholly owned Climax molybdenum mine in Colorado, which has been on care-and-maintenance status since 1995; a sales company that purchases and sells molybdenum from our Henderson mine and from our North and South America copper mines that produce molybdenum as a by-product; and related conversion facilities that, at times, roast and/or process material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities for processing into a product that is returned to the customer, who pays us for processing their material into the specified products.

Operating and Development Activities. Beginning in fourth-quarter 2008, molybdenum markets were significantly affected by the downturn in global economic conditions, which resulted in the Henderson molybdenum mine operating at reduced rates throughout 2009. Improved market conditions have resulted in an increase in
 
Henderson’s rates to approximately 90 percent capacity. We will continue to review operating plans and adjust rates to reflect market conditions.

We are monitoring market conditions to determine the timing for completing construction activities associated with the Climax molybdenum project. The Climax mine would have an initial annual design capacity of 30 million pounds, with significant expansion options. We will continue activities in a controlled manner to advance the project so that we are prepared for commencement of production as market conditions improve. As of June 30, 2010, estimated remaining costs for the project approximated $500 million, including $60 million during the next several months to advance certain construction activities and provide flexibility in start-up timing options.
 
 
Operating Data. Following is summary operating data for the Molybdenum operations for the second quarters and first six months of 2010 and 2009:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
                           
Molybdenum (millions of recoverable pounds)
                         
Production a
   
11
   
6
   
20
   
13
 
Sales, excluding purchases b
   
16
   
16
   
33
   
26
 
Average realized price per pound
 
$
18.18
 
$
10.11
 
$
16.62
 
$
10.65
 
                           
Henderson molybdenum mine
                         
Ore milled (metric tons per day)
   
22,800
   
11,700
   
23,000
   
13,400
 
Average molybdenum ore grade (percent)
   
0.25
   
0.27
   
0.24
   
0.25
 
Molybdenum production (millions of recoverable pounds)
   
11
   
6
   
20
   
13
 
 
a.  
Reflects production at the Henderson molybdenum mine.
 
b.  
Includes sales of molybdenum produced as a by-product at our North and South America copper mines.

Molybdenum sales volumes totaled 16 million pounds in second-quarter 2010 and 33 million pounds for the first six months of 2010, compared with 16 million pounds in second-quarter 2009 and 26 million pounds for the first six months of 2009. Higher molybdenum sales volumes in 2010 reflect improved demand in the chemical sector. Molybdenum sales volumes are expected to approximate 63 million pounds for the year 2010, of which approximately 30 million pounds represents by-product production from our North and South America copper mines, compared with 58 million pounds in 2009, of which 27 million pounds represented by-product production from our North and South America copper mines.

Unit Net Cash Costs. Unit net cash costs per pound of molybdenum is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Molybdenum

The following table summarizes the unit net cash costs and gross profit per pound of molybdenum at our Henderson molybdenum mine for the second quarters and first six months of 2010 and 2009. Refer to “Product Revenues and Production Costs” for a reconciliation of unit net cash costs to production and delivery costs applicable to sales reported in our consolidated financial statements.

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2010
 
2009 a
 
2010
 
2009 a
 
Revenues, excluding adjustments
$
17.36
 
$
10.96
 
$
16.06
 
$
11.32
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
4.65
   
5.99
   
4.57
   
5.78
 
Treatment charges and other
 
1.08
   
1.10
   
1.08
   
1.09
 
Unit net cash costs
 
5.73
   
7.09
   
5.65
   
6.87
 
Depreciation, depletion and amortization
 
0.82
   
1.00
   
0.83
   
0.96
 
Noncash and other costs, net
 
0.02
   
0.07
   
0.03
   
0.05
 
Total unit costs
 
6.57
   
8.16
   
6.51
   
7.88
 
Gross profit b
$
10.79
 
$
2.80
 
$
9.55
 
$
3.44
 
                         
Molybdenum sales (millions of recoverable pounds) c
 
11
   
6
   
20
   
13
 
 
a.  
Revenues and costs were adjusted to include freight and downstream conversion costs in net cash costs; gross profit was not affected by these adjustments.
 
b.  
Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum segment includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
 
c.  
Reflects molybdenum produced by the Henderson molybdenum mine.

Henderson’s unit net cash costs decreased to $5.73 per pound of molybdenum in second-quarter 2010 and $5.65 for the first six months of 2010, compared with $7.09 per pound of molybdenum in second-quarter 2009 and $6.87 per pound for the first six months of 2009, primarily reflecting higher volumes. Assuming achievement of current 2010 sales volume estimates, we estimate that the 2010 average unit net cash costs for Henderson would approximate $6.25 per pound of molybdenum, compared with $6.52 per pound in 2009.

Rod & Refining
The Rod & Refining operations consist of copper conversion facilities located in North America, including a refinery, three rod mills and a specialty copper products facility. These operations process copper produced at our North America copper mines and purchased copper into copper cathode, rod and custom copper shapes. At times these operations refine copper and produce copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities for processing into a product that is returned to the customer, who pays us for processing their material into the specified products.

During April 2010, we successfully negotiated a new three-year labor contract with certain of our employees at Bayway, our specialty copper products facility in New Jersey.

Atlantic Copper Smelting & Refining
Atlantic Copper, our wholly owned subsidiary located in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes. Our Indonesia mining operation sells copper concentrate and our South America mining operations sell copper concentrate and copper cathode to Atlantic Copper. Through downstream integration, we are assured placement of a significant portion of our concentrate production. During the first half of 2010, Atlantic Copper purchased approximately 30 percent of its concentrate requirements from our Indonesia mining operation and approximately 20 percent from our South America mining operations.

Smelting and refining charges consist of a base rate and, in certain contracts, price participation based on copper prices. Treatment charges for smelting and refining copper concentrates represent a cost to our Indonesia and South America mining operations, and income to Atlantic Copper and PT Smelting. Thus, higher treatment and refining charges benefit our smelter operations at Atlantic Copper and adversely affect our mining operations in
 
Indonesia and South America. Our North America copper mines are not significantly affected by changes in treatment and refining charges because these operations are fully integrated with our Miami smelter located in Arizona.

Atlantic Copper had operating losses of $2 million in second-quarter 2010 and $13 million for the first six months of 2010, compared with $18 million in second-quarter 2009 and $29 million for the first six months of 2009. Lower operating losses for Atlantic Copper during the 2010 periods primarily reflected higher sulphuric acid and gold revenues associated with higher prices.

We defer recognizing profits on sales from our Indonesia and South America mining operations to Atlantic Copper and on 25 percent of our Indonesia mining sales to PT Smelting until final sales to third parties occur. Our net deferred profits on our Indonesia and the South America mining operations’ inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income after taxes and noncontrolling interests totaled $137 million at December 31, 2009, $157 million at March 31, 2010, and $93 million at June 30, 2010. Changes in these deferrals attributable to variability in intercompany volumes resulted in net additions to net income attributable to FCX common stockholders totaling $20 million ($0.04 per share) in second-quarter 2010 and net reductions of $28 million ($0.06 per share) for the first six months of 2010, compared with net additions of $13 million ($0.03 per share) in second-quarter 2009 and net reductions of $3 million ($0.01 per share) for the first six months of 2009. We currently project intercompany sales will increase in third-quarter 2010, which would result in an increase in deferred profits in inventory and a corresponding decrease in net income. Quarterly variations in ore grades, the timing of intercompany shipments and changes in prices will result in variability in our net deferred profits and quarterly earnings.

CAPITAL RESOURCES AND LIQUIDITY

Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our production levels, production costs, cash payments for income taxes and interest, other working capital changes and other factors. As a result of weak economic conditions, we revised our operating plans at the end of 2008 and in early 2009 to protect liquidity while preserving our large mineral resources and growth options for the longer term. However, a strong operating performance and improved copper prices since the end of 2008 have enabled us to enhance our financial and liquidity position, reduce debt and reinstate cash dividends to shareholders, while maintaining our future growth opportunities. In addition, we have resumed certain project development activities at our mining operations (refer to “Operations” for further discussion). We view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy, and will continue to adjust our operating strategy as market conditions change.

Based on current mine plans and subject to future copper, gold and molybdenum prices, we expect estimated  operating cash flows for the year 2010 to be greater than our budgeted capital expenditures, expected debt payments, dividends, noncontrolling interest distributions and other cash requirements.

Cash and Cash Equivalents
At June 30, 2010, we had consolidated cash and cash equivalents of $3.0 billion. The following table reflects the U.S. and international components of consolidated cash and cash equivalents at June 30, 2010, and December 31, 2009 (in billions):

 
June 30,
 
December 31,
 
 
2010
 
2009
 
Cash at domestic companies a
$
1.0
 
$
1.5
 
Cash at international operations
 
2.0
   
1.2
 
Total consolidated cash and cash equivalents
 
3.0
   
2.7
 
Less: Noncontrolling interests’ share
 
(0.6
)
 
(0.3
)
Cash, net of noncontrolling interests’ share
 
2.4
   
2.4
 
Less: Withholding taxes and other
 
(0.2
)
 
(0.2
)
Net cash available
$
2.2
 
$
2.2
 
 
a.  
Includes cash at our parent company and North America operations.

Operating Activities
We generated operating cash flows totaling $2.9 billion for the first six months of 2010, including $107 million from working capital sources. Operating cash flows generated for the first six months of 2009 totaled $896 million, net of $926 million used for working capital requirements (which included approximately $600 million related to
 
settlement of final pricing with customers on 2008 provisionally priced copper sales). Higher operating cash flows for the first six months of 2010, compared with the first six months of 2009, primarily reflected higher copper prices, partially offset by lower copper and gold sales volumes.

Refer to “Outlook” for further discussion of projected operating cash flows for the year 2010.

Investing Activities
Capital expenditures, including capitalized interest, decreased to $527 million for the first six months of 2010, compared with $894 million for the first six months of 2009, primarily reflecting the effects of lower capital spending for the Tenke Fungurume development project, for which construction activities were substantially complete by mid-2009.

Refer to “Outlook” for further discussion of projected capital expenditures for 2010.

Financing Activities
Debt and Equity Transactions. At June 30, 2010, total debt approximated $4.8 billion, and we had 470 million common shares outstanding.

On April 1, 2010, we redeemed all of our $1 billion of outstanding Senior Floating Rate Notes due 2015 for which holders received 101 percent of the principal amount together with accrued and unpaid interest. In addition, during the first six months of 2010, we made open-market purchases of $547 million of our 8.25% Senior Notes and 8.375% Senior Notes at a cost of $595 million. Refer to Note 6 for further discussion.

Since January 1, 2009, we have repaid approximately $2.6 billion in debt resulting in estimated annual interest savings of $172 million. We have no significant debt maturities in the near term; however, we may consider opportunities to prepay debt in advance of scheduled maturities.

We have revolving credit facilities available through March 2012, which are composed of a (i) $1.0 billion revolving credit facility available to FCX and (ii) $0.5 billion revolving credit facility available to both FCX and PT Freeport Indonesia. At June 30, 2010, we had no borrowings and $42 million of letters of credit issued under the facilities resulting in availability of approximately $1.5 billion ($958 million of which could be used for additional letters of credit). The revolving credit facilities contain restrictions on the amount available for dividend payments, purchases of our common stock and certain debt prepayments. However, these restrictions do not apply as long as availability under the revolvers plus domestic cash exceeds $750 million. At June 30, 2010, we had availability under the revolvers plus available domestic cash (as defined by the revolving credit facility) totaling approximately $3.1 billion.

In addition, the indenture governing certain of our senior notes contains restrictions on incurring debt, making restricted payments and selling assets. As a result of our current corporate credit rating and the ratings on our unsecured notes (investment grade), these covenants are currently suspended. However, to the extent the rating is downgraded below investment grade, the covenants would again become effective.

In February 2009, we completed a public offering of 26.8 million shares of our common stock at an average price of $28.00 per share, which generated gross proceeds of $750 million (net proceeds of $740 million after fees and expenses), which were used for general corporate purposes.

We made no purchases under our open-market share purchase program during 2009 for the first six months of 2010. There are 23.7 million shares remaining under this program. The timing of future purchases of our common stock is dependent on many factors, including our operating results; cash flows and financial position; copper, gold and molybdenum prices; the price of our common shares; and general economic and market conditions.

Cash Dividends. The declaration and payment of dividends is at the discretion of our Board of Directors (the Board). The amount of our cash dividend on our common stock is dependent upon our financial results, cash requirements, future prospects and other factors deemed relevant by the Board. Because of the deterioration in copper and molybdenum prices and in general economic conditions, in December 2008, the Board suspended the cash dividend on our common stock; accordingly, there were no common dividends paid for the first six months of 2009. In October 2009, the Board reinstated an annual cash dividend on our common stock of $0.60 per share ($0.15 per share quarterly), and in April 2010, authorized an increase in the annual cash dividend on common stock to $1.20 per share ($0.30 per share quarterly). For the first six months of 2010, common stock dividends
 
paid totaled $130 million. On June 24, 2010, the Board declared a quarterly dividend of $0.30 per share, which was paid on August 1, 2010, to common shareholders of record at the close of business on July 15, 2010. The Board will continue to review our financial policy on an ongoing basis.

Preferred stock dividends paid totaled $95 million for the first six months of 2010 representing dividends on our 6¾% Mandatory Convertible Preferred Stock, and $120 million for the first six months of 2009 representing dividends on our 5½% Convertible Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred Stock. During second-quarter 2010, our 6¾% Mandatory Convertible Preferred Stock converted into 39 million shares of our common stock (refer to Note 6 for further discussion). In September 2009, we redeemed our 5½% Convertible Perpetual Preferred Stock in exchange for 18 million shares of our common stock. As a result of these transactions, we no longer have requirements to pay preferred dividends.

Cash dividends paid to noncontrolling interests totaled $145 million for the first six months of 2010, which reflected dividends paid to the noncontrolling interest owners of PT Freeport Indonesia and the South America mining operations. Cash dividends paid to noncontrolling interest totaled $63 million for the first six months of 2009, which reflected dividends paid to the noncontrolling interest owners of PT Freeport Indonesia.

CONTRACTUAL OBLIGATIONS

There have been no material changes in our contractual obligations since year-end 2009. Refer to Item 7 in our report on Form 10-K for the year ended December 31, 2009, for further information regarding our contractual obligations.

ENVIRONMENTAL AND RECLAMATION MATTERS

Our mining, exploration, production and historical operating activities are subject to stringent laws and regulations governing the protection of the environment. There have been no material changes to our environmental and reclamation obligations since year-end 2009. Refer to Note 14 in our report on Form 10-K for the year ended December 31, 2009, for further information regarding our environmental and reclamation obligations.

 
NEW ACCOUNTING STANDARDS

We do not expect the impact of recently issued accounting standards to have a significant impact on our future financial statements and disclosures.

PRODUCT REVENUES AND PRODUCTION COSTS

Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for the respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

We present gross profit per pound of copper using both a “by-product” method and a “co-product” method. We use the by-product method in our presentation of gross profit per pound of copper because (i) the majority of our revenues are copper revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of our costs to revenues from the copper, gold, molybdenum and other metals we produce, (iv) it is the method used to compare mining operations in certain industry publications and
(v) it is the method used by our management and the Board to monitor operations. In the co-product method presentation below, shared costs are allocated to the different products based on their relative revenue values, which will vary to the extent our metals sales volumes and realized prices change.

In both the by-product and the co-product method calculations, we show adjustments to copper revenues for prior period open sales as separate line items. Because the copper pricing adjustments do not result from current period sales, we have reflected these separately from revenues on current period sales. Noncash and other costs consist of items such as stock-based compensation costs, LCM inventory adjustments, write-offs of equipment and/or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. Following are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in our consolidated financial statements.

North America Copper Mines Product Revenues and Production Costs

Three Months Ended June 30, 2010
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
 
Revenues, excluding adjustments
$
925
 
$
925
 
$
104
 
$
19
 
$
1,048
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
421
   
376
   
51
   
9
   
436
 
By-product credits a
 
(108
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
26
   
26
   
–
   
–
   
26
 
Net cash costs
 
339
   
402
   
51
   
9
   
462
 
Depreciation, depletion and amortization
 
66
   
62
   
3
   
1
   
66
 
Noncash and other costs, net
 
53
   
52
   
1
   
–
   
53
 
Total costs
 
458
   
516
   
55
   
10
   
581
 
Revenue adjustments, primarily for hedging
 
(1
)
 
(1
)
 
–
   
–
   
(1
)
Idle facility and other non-inventoriable costs
 
(21
)
 
(21
)
 
–
   
–
   
(21
)
Gross profit
$
445
 
$
387
 
$
49
 
$
9
 
$
445
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
           
Depreciation,
             
       
Production
   
Depletion and
             
 
Revenues
 
and Delivery
   
Amortization
             
Totals presented above
$
1,048
 
$
436
 
$
66
             
Net noncash and other costs per above
 
N/A
   
53
   
N/A
             
Treatment charges per above
 
N/A
   
26
   
N/A
             
Revenue adjustments, primarily for hedging per above
 
(1
)
 
N/A
   
N/A
             
Idle facility and other non-inventoriable costs per above
 
N/A
   
21
   
N/A
             
Eliminations and other
 
(3
)
 
1
   
5
             
North America copper mines
 
1,044
   
537
   
71
             
South America mining
 
849
   
389
   
59
             
Indonesia mining
 
927
   
427
   
57
             
Africa mining
 
207
   
96
   
30
             
Molybdenum
 
325
   
190
   
12
             
Rod & Refining
 
1,129
   
1,121
   
2
             
Atlantic Copper Smelting & Refining
 
616
   
605
   
9
             
Corporate, other & eliminations
 
(1,233
)
 
(1,313
)
 
9
             
As reported in FCX’s consolidated financial statements
$
3,864
 
$
2,052
 
$
249
             
 
a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Includes gold and silver product revenues and production costs.

 
North America Copper Mines Product Revenues and Production Costs (continued)

Three Months Ended June 30, 2009
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
 
Revenues, excluding adjustments
$
615
 
$
615
 
$
60
 
$
10
 
$
685
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
350
   
318
   
38
   
6
   
362
 
By-product credits a
 
(58
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
25
   
24
   
–
   
1
   
25
 
Net cash costs
 
317
   
342
   
38
   
7
   
387
 
Depreciation, depletion and amortization
 
60
   
57
   
3
   
–
   
60
 
Noncash and other costs, net
 
41
   
41
   
–
   
–
   
41
 
Total costs
 
418
   
440
   
41
   
7
   
488
 
Revenue adjustments, primarily for hedging
 
19
   
19
   
–
   
–
   
19
 
Idle facility and other non-inventoriable costs
 
(24
)
 
(24
)
 
–
   
–
   
(24
)
Gross profit
$
192
 
$
170
 
$
19
 
$
3
 
$
192
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
           
Depreciation,
             
       
Production
   
Depletion and
             
 
Revenues
 
and Delivery
   
Amortization
             
Totals presented above
$
685
 
$
362
 
$
60
             
Net noncash and other costs per above
 
N/A
   
41
   
N/A
             
Treatment charges per above
 
N/A
   
25
   
N/A
             
Revenue adjustments, primarily for hedging per above
 
19
   
N/A
   
N/A
             
Idle facility and other non-inventoriable costs per above
 
N/A
   
24
   
N/A
             
Eliminations and other
 
(1
)
 
9
   
4
             
North America copper mines
 
703
   
461
   
64
             
South America mining
 
884
   
366
   
69
             
Indonesia mining
 
1,610
   
415
   
78
             
Africa mining
 
57
   
92
   
14
             
Molybdenum
 
186
   
162
   
13
             
Rod & Refining
 
747
   
743
   
2
             
Atlantic Copper Smelting & Refining
 
415
   
419
   
9
             
Corporate, other & eliminations
 
(918
)
 
(849
)
 
7
             
As reported in FCX’s consolidated financial statements
$
3,684
 
$
1,809
 
$
256
             
 
a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Includes gold and silver product revenues and production costs.
 
North America Copper Mines Product Revenues and Production Costs (continued)

Six Months Ended June 30, 2010
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
 
Revenues, excluding adjustments
$
1,890
 
$
1,890
 
$
181
 
$
31
 
$
2,102
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
802
   
725
   
92
   
14
   
831
 
By-product credits a
 
(183
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
48
   
47
   
–
   
1
   
48
 
Net cash costs
 
667
   
772
   
92
   
15
   
879
 
Depreciation, depletion and amortization
 
144
   
136
   
7
   
1
   
144
 
Noncash and other costs, net
 
77
   
76
   
1
   
–
   
77
 
Total costs
 
888
   
984
   
100
   
16
   
1,100
 
Revenue adjustments, primarily for hedging
 
(2
)
 
(2
)
 
–
   
–
   
(2
)
Idle facility and other non-inventoriable costs
 
(39
)
 
(39
)
 
–
   
–
   
(39
)
Gross profit
$
961
 
$
865
 
$
81
 
$
15
 
$
961
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
           
Depreciation,
             
       
Production
   
Depletion and
             
 
Revenues
 
and Delivery
   
Amortization
             
Totals presented above
$
2,102
 
$
831
 
$
144
             
Net noncash and other costs per above
 
N/A
   
77
   
N/A
             
Treatment charges per above
 
N/A
   
48
   
N/A
             
Revenue adjustments, primarily for hedging per above
 
(2
)
 
N/A
   
N/A
             
Idle facility and other non-inventoriable costs per above
 
N/A
   
39
   
N/A
             
Eliminations and other
 
(2
)
 
6
   
9
             
North America copper mines
 
2,098
   
1,001
   
153
             
South America mining
 
1,918
   
765
   
120
             
Indonesia mining
 
2,386
   
902
   
120
             
Africa mining
 
456
   
206
   
60
             
Molybdenum
 
600
   
375
   
25
             
Rod & Refining
 
2,202
   
2,188
   
4
             
Atlantic Copper Smelting & Refining
 
1,249
   
1,233
   
19
             
Corporate, other & eliminations
 
(2,682
)
 
(2,700
)
 
19
             
As reported in FCX’s consolidated financial statements
$
8,227
 
$
3,970
 
$
520
             
 
a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Includes gold and silver product revenues and production costs.



North America Copper Mines Product Revenues and Production Costs (continued)

Six Months Ended June 30, 2009
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
 
Revenues, excluding adjustments
$
1,095
 
$
1,095
 
$
119
 
$
16
 
$
1,230
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
746
   
696
   
64
   
8
   
768
 
By-product credits a
 
(113
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
50
   
49
   
–
   
1
   
50
 
Net cash costs
 
683
   
745
   
64
   
9
   
818
 
Depreciation, depletion and amortization
 
131
   
126
   
4
   
1
   
131
 
Noncash and other costs, net
 
87
   
86
   
1
   
–
   
87
 
Total costs
 
901
   
957
   
69
   
10
   
1,036
 
Revenue adjustments, primarily for hedging
 
88
   
88
   
–
   
–
   
88
 
Idle facility and other non-inventoriable costs
 
(62
)
 
(62
)
 
–
   
–
   
(62
)
Gross profit
$
220
 
$
164
 
$
50
 
$
6
 
$
220
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
           
Depreciation,
             
       
Production
   
Depletion and
             
 
Revenues
 
and Delivery
   
Amortization
             
Totals presented above
$
1,230
 
$
768
 
$
131
             
Net noncash and other costs per above
 
N/A
   
87
   
N/A
             
Treatment charges per above
 
N/A
   
50
   
N/A
             
Revenue adjustments, primarily for hedging per above
 
88
   
N/A
   
N/A
             
Idle facility and other non-inventoriable costs per above
 
N/A
   
62
   
N/A
             
Eliminations and other
 
3
   
47
   
8
             
North America copper mines
 
1,321
   
1,014
   
139
             
South America mining
 
1,586
   
733
   
134
             
Indonesia mining
 
2,732
   
765
   
143
             
Africa mining
 
57
   
108
   
17
             
Molybdenum
 
332
   
300
c
 
22
             
Rod & Refining
 
1,366
   
1,357
   
4
             
Atlantic Copper Smelting & Refining
 
707
   
712
   
17
             
Corporate, other & eliminations
 
(1,815
)
 
(1,599
)
 
12
             
As reported in FCX’s consolidated financial statements
$
6,286
 
$
3,390
c
$
488
             
 
a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Includes gold and silver product revenues and production costs.
 
c.  
Includes LCM molybdenum inventory adjustments totaling $19 million.
 
South America Mining Product Revenues and Production Costs

Three Months Ended June 30, 2010
               
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Other a
 
Total
 
Revenues, excluding adjustments
$
936
 
$
936
 
$
60
 
$
996
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
379
   
356
   
26
   
382
 
By-product credits
 
(57
)
 
–
   
–
   
–
 
Treatment charges
 
33
   
33
   
–
   
33
 
Net cash costs
 
355
   
389
   
26
   
415
 
Depreciation, depletion and amortization
 
59
   
57
   
2
   
59
 
Noncash and other costs, net
 
5
   
4
   
1
   
5
 
Total costs
 
419
   
450
   
29
   
479
 
Revenue adjustments, primarily for pricing on prior
                       
period open sales
 
(114
)
 
(114
)
 
–
   
(114
)
Other non-inventoriable costs
 
(6
)
 
(5
)
 
(1
)
 
(6
)
Gross profit
$
397
 
$
367
 
$
30
 
$
397
 
                         
Reconciliation to Amounts Reported
                       
(In millions)
         
Depreciation,
       
       
Production
 
Depletion and
       
 
Revenues
 
and Delivery
 
Amortization
       
Totals presented above
$
996
 
$
382
 
$
59
       
Net noncash and other costs per above
 
N/A
   
5
   
N/A
       
Treatment charges per above
 
(33
)
 
N/A
   
N/A
       
Revenue adjustments, primarily for pricing on prior
                       
period open sales per above
 
(114
)
 
N/A
   
N/A
       
Other non-inventoriable costs per above
 
N/A
   
6
   
N/A
       
Eliminations and other
 
–
   
(4
)
 
–
       
South America mining
 
849
   
389
   
59
       
North America copper mines
 
1,044
   
537
   
71
       
Indonesia mining
 
927
   
427
   
57
       
Africa mining
 
207
   
96
   
30
       
Molybdenum
 
325
   
190
   
12
       
Rod & Refining
 
1,129
   
1,121
   
2
       
Atlantic Copper Smelting & Refining
 
616
   
605
   
9
       
Corporate, other & eliminations
 
(1,233
)
 
(1,313
)
 
9
       
As reported in FCX’s consolidated financial statements
$
3,864
 
$
2,052
 
$
249
       
 
a.  
Includes gold, silver and molybdenum product revenues and production costs.
 
South America Mining Product Revenues and Production Costs (continued)

Three Months Ended June 30, 2009
               
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Other a
 
Total
 
Revenues, excluding adjustments
$
803
 
$
803
 
$
40
 
$
843
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
364
   
346
   
19
   
365
 
By-product credits
 
(39
)
 
–
   
–
   
–
 
Treatment charges
 
54
   
54
   
–
   
54
 
Net cash costs
 
379
   
400
   
19
   
419
 
Depreciation, depletion and amortization
 
69
   
67
   
2
   
69
 
Noncash and other costs, net
 
(2
)
 
(1
)
 
(1
)
 
(2
)
Total costs
 
446
   
466
   
20
   
486
 
Revenue adjustments, primarily for pricing on prior
                       
period open sales
 
95
   
95
   
–
   
95
 
Other non-inventoriable costs
 
(8
)
 
(5
)
 
(3
)
 
(8
)
Gross profit
$
444
 
$
427
 
$
17
 
$
444
 
                         
Reconciliation to Amounts Reported
                       
(In millions)
         
Depreciation,
       
       
Production
 
Depletion and
       
 
Revenues
 
and Delivery
 
Amortization
       
Totals presented above
$
843
 
$
365
 
$
69
       
Net noncash and other costs per above
 
N/A
   
(2
)
 
N/A
       
Treatment charges per above
 
(54
)
 
N/A
   
N/A
       
Revenue adjustments, primarily for pricing on prior
                       
period open sales per above
 
95
   
N/A
   
N/A
       
Other non-inventoriable costs per above
 
N/A
   
8
   
N/A
       
Eliminations and other
 
–
   
(5
)
 
–
       
South America mining
 
884
   
366
   
69
       
North America copper mines
 
703
   
461
   
64
       
Indonesia mining
 
1,610
   
415
   
78
       
Africa mining
 
57
   
92
   
14
       
Molybdenum
 
186
   
162
   
13
       
Rod & Refining
 
747
   
743
   
2
       
Atlantic Copper Smelting & Refining
 
415
   
419
   
9
       
Corporate, other & eliminations
 
(918
)
 
(849
)
 
7
       
As reported in FCX’s consolidated financial statements
$
3,684
 
$
1,809
 
$
256
       
 
a.  
Includes gold, silver and molybdenum product revenues and production costs.
 
South America Mining Product Revenues and Production Costs (continued)

Six Months Ended June 30, 2010
               
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Other a
 
Total
 
Revenues, excluding adjustments
$
1,898
 
$
1,898
 
$
116
 
$
2,014
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
746
   
704
   
49
   
753
 
By-product credits
 
(108
)
 
–
   
–
   
–
 
Treatment charges
 
80
   
80
   
–
   
80
 
Net cash costs
 
718
   
784
   
49
   
833
 
Depreciation, depletion and amortization
 
119
   
115
   
5
   
120
 
Noncash and other costs, net
 
7
   
6
   
1
   
7
 
Total costs
 
844
   
905
   
55
   
960
 
Revenue adjustments, primarily for pricing on prior
                       
period open sales
 
(17
)
 
(17
)
 
–
   
(17
)
Other non-inventoriable costs
 
(14
)
 
(12
)
 
(2
)
 
(14
)
Gross profit
$
1,023
 
$
964
 
$
59
 
$
1,023
 
                         
Reconciliation to Amounts Reported
                       
(In millions)
         
Depreciation,
       
       
Production
 
Depletion and
       
 
Revenues
 
and Delivery
 
Amortization
       
Totals presented above
$
2,014
 
$
753
 
$
120
       
Net noncash and other costs per above
 
N/A
   
7
   
N/A
       
Treatment charges per above
 
(80
)
 
N/A
   
N/A
       
Revenue adjustments, primarily for pricing on prior
                       
period open sales per above
 
(17
)
 
N/A
   
N/A
       
Other non-inventoriable costs per above
 
N/A
   
14
   
N/A
       
Eliminations and other
 
1
   
(9
)
 
–
       
South America mining
 
1,918
   
765
   
120
       
North America copper mines
 
2,098
   
1,001
   
153
       
Indonesia mining
 
2,386
   
902
   
120
       
Africa mining
 
456
   
206
   
60
       
Molybdenum
 
600
   
375
   
25
       
Rod & Refining
 
2,202
   
2,188
   
4
       
Atlantic Copper Smelting & Refining
 
1,249
   
1,233
   
19
       
Corporate, other & eliminations
 
(2,682
)
 
(2,700
)
 
19
       
As reported in FCX’s consolidated financial statements
$
8,227
 
$
3,970
 
$
520
       
 
a.  
Includes gold, silver and molybdenum product revenues and production costs.
 
South America Mining Product Revenues and Production Costs (continued)

Six Months Ended June 31, 2009
               
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Other a
 
Total
 
Revenues, excluding adjustments
$
1,497
 
$
1,497
 
$
84
 
$
1,581
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
716
   
669
   
53
   
722
 
By-product credits
 
(78
)
 
–
   
–
   
–
 
Treatment charges
 
102
   
102
   
–
   
102
 
Net cash costs
 
740
   
771
   
53
   
824
 
Depreciation, depletion and amortization
 
134
   
129
   
5
   
134
 
Noncash and other costs, net
 
3
   
4
   
(1
)
 
3
 
Total costs
 
877
   
904
   
57
   
961
 
Revenue adjustments, primarily for pricing on prior
                       
period open sales
 
106
   
106
   
–
   
106
 
Other non-inventoriable costs
 
(17
)
 
(13
)
 
(4
)
 
(17
)
Gross profit
$
709
 
$
686
 
$
23
 
$
709
 
                         
Reconciliation to Amounts Reported
                       
(In millions)
         
Depreciation,
       
       
Production
 
Depletion and
       
 
Revenues
 
and Delivery
 
Amortization
       
Totals presented above
$
1,581
 
$
722
 
$
134
       
Net noncash and other costs per above
 
N/A
   
3
   
N/A
       
Treatment charges per above
 
(102
)
 
N/A
   
N/A
       
Revenue adjustments, primarily for pricing on prior
                       
period open sales per above
 
106
   
N/A
   
N/A
       
Other non-inventoriable costs per above
 
N/A
   
17
   
N/A
       
Eliminations and other
 
1
   
(9
)
 
–
       
South America mining
 
1,586
   
733
   
134
       
North America copper mines
 
1,321
   
1,014
   
139
       
Indonesia mining
 
2,732
   
765
   
143
       
Africa mining
 
57
   
108
   
17
       
Molybdenum
 
332
   
300
b
 
22
       
Rod & Refining
 
1,366
   
1,357
   
4
       
Atlantic Copper Smelting & Refining
 
707
   
712
   
17
       
Corporate, other & eliminations
 
(1,815
)
 
(1,599
)
 
12
       
As reported in FCX’s consolidated financial statements
$
6,286
 
$
3,390
b
$
488
       
 
a.  
Includes gold, silver and molybdenum product revenues and production costs.
 
b.  
Includes LCM molybdenum inventory adjustments totaling $19 million.
 
Indonesia Mining Product Revenues and Production Costs

Three Months Ended June 30, 2010
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Gold
 
Silver
 
Total
 
Revenues, excluding adjustments
$
765
 
$
765
 
$
352
 
$
14
 
$
1,131
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
422
   
285
   
132
   
5
   
422
 
Gold and silver credits
 
(366
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
67
   
45
   
21
   
1
   
67
 
Royalty on metals
 
28
   
19
   
9
   
–
   
28
 
Net cash costs
 
151
   
349
   
162
   
6
   
517
 
Depreciation and amortization
 
57
   
38
   
17
   
2
   
57
 
Noncash and other costs, net
 
5
   
4
   
1
   
–
   
5
 
Total costs
 
213
   
391
   
180
   
8
   
579
 
Revenue adjustments, primarily for pricing on prior
                             
period open sales
 
(109
)
 
(109
)
 
–
   
–
   
(109
)
PT Smelting intercompany profit
 
17
   
11
   
5
   
1
   
17
 
Gross profit
$
460
 
$
276
 
$
177
 
$
7
 
$
460
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
       
Depreciation,
             
     
Production
 
Depletion and
             
 
Revenues
 
and Delivery
 
Amortization
             
Totals presented above
$
1,131
 
$
422
 
$
57
             
Net noncash and other costs per above
 
N/A
   
5
   
N/A
             
Treatment charges per above
 
(67
)
 
N/A
   
N/A
             
Royalty on metals per above
 
(28
)
 
N/A
   
N/A
             
Revenue adjustments, primarily for pricing on prior
                             
period open sales per above
 
(109
)
 
N/A
   
N/A
             
Indonesia mining
 
927
   
427
   
57
             
North America copper mines
 
1,044
   
537
   
71
             
South America mining
 
849
   
389
   
59
             
Africa mining
 
207
   
96
   
30
             
Molybdenum
 
325
   
190
   
12
             
Rod & Refining
 
1,129
   
1,121
   
2
             
Atlantic Copper Smelting & Refining
 
616
   
605
   
9
             
Corporate, other & eliminations
 
(1,233
)
 
(1,313
)
 
9
             
As reported in FCX’s consolidated financial statements
$
3,864
 
$
2,052
 
$
249
             
 
Indonesia Mining Product Revenues and Production Costs (continued)

Three Months Ended June 30, 2009
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Gold
 
Silver
 
Total
 
Revenues, excluding adjustments
$
966
 
$
966
 
$
753
 
$
23
 
$
1,742
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
401
   
223
   
172
   
6
   
401
 
Gold and silver credits
 
(776
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
94
   
53
   
40
   
1
   
94
 
Royalty on metals
 
49
   
28
   
21
   
–
   
49
 
Net cash (credits) costs
 
(232
)
 
304
   
233
   
7
   
544
 
Depreciation and amortization
 
78
   
44
   
33
   
1
   
78
 
Noncash and other costs, net
 
14
   
7
   
7
   
–
   
14
 
Total (credits) costs
 
(140
)
 
355
   
273
   
8
   
636
 
Revenue adjustments, primarily for pricing on prior
                             
period open sales
 
11
   
11
   
–
   
–
   
11
 
PT Smelting intercompany loss
 
(30
)
 
(17
)
 
(12
)
 
(1
)
 
(30
)
Gross profit
$
1,087
 
$
605
 
$
468
 
$
14
 
$
1,087
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
       
Depreciation,
             
     
Production
 
Depletion and
             
 
Revenues
 
and Delivery
 
Amortization
             
Totals presented above
$
1,742
 
$
401
 
$
78
             
Net noncash and other costs per above
 
N/A
   
14
   
N/A
             
Treatment charges per above
 
(94
)
 
N/A
   
N/A
             
Royalty on metals per above
 
(49
)
 
N/A
   
N/A
             
Revenue adjustments, primarily for pricing on prior
                             
period open sales per above
 
11
   
N/A
   
N/A
             
Indonesia mining
 
1,610
   
415
   
78
             
North America copper mines
 
703
   
461
   
64
             
South America mining
 
884
   
366
   
69
             
Africa mining
 
57
   
92
   
14
             
Molybdenum
 
186
   
162
   
13
             
Rod & Refining
 
747
   
743
   
2
             
Atlantic Copper Smelting & Refining
 
415
   
419
   
9
             
Corporate, other & eliminations
 
(918
)
 
(849
)
 
7
             
As reported in FCX’s consolidated financial statements
$
3,684
 
$
1,809
 
$
256
             
 
Indonesia Mining Product Revenues and Production Costs (continued)

Six Months Ended June 30, 2010
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Gold
 
Silver
 
Total
 
Revenues, excluding adjustments
$
1,694
 
$
1,694
 
$
861
 
$
35
 
$
2,590
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
878
   
574
   
292
   
12
   
878
 
Gold and silver credits
 
(896
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
134
   
88
   
44
   
2
   
134
 
Royalty on metals
 
64
   
42
   
21
   
1
   
64
 
Net cash costs
 
180
   
704
   
357
   
15
   
1,076
 
Depreciation and amortization
 
120
   
78
   
40
   
2
   
120
 
Noncash and other costs, net
 
24
   
16
   
8
   
–
   
24
 
Total costs
 
324
   
798
   
405
   
17
   
1,220
 
Revenue adjustments, primarily for pricing on prior
                             
period open sales
 
(6
)
 
(6
)
 
–
   
–
   
(6
)
PT Smelting intercompany profit
 
29
   
19
   
9
   
1
   
29
 
Gross profit
$
1,393
 
$
909
 
$
465
 
$
19
 
$
1,393
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
       
Depreciation,
             
     
Production
 
Depletion and
             
 
Revenues
 
and Delivery
 
Amortization
             
Totals presented above
$
2,590
 
$
878
 
$
120
             
Net noncash and other costs per above
 
N/A
   
24
   
N/A
             
Treatment charges per above
 
(134
)
 
N/A
   
N/A
             
Royalty on metals per above
 
(64
)
 
N/A
   
N/A
             
Revenue adjustments, primarily for pricing on prior
                             
period open sales per above
 
(6
)
 
N/A
   
N/A
             
Indonesia mining
 
2,386
   
902
   
120
             
North America copper mines
 
2,098
   
1,001
   
153
             
South America mining
 
1,918
   
765
   
120
             
Africa mining
 
456
   
206
   
60
             
Molybdenum
 
600
   
375
   
25
             
Rod & Refining
 
2,202
   
2,188
   
4
             
Atlantic Copper Smelting & Refining
 
1,249
   
1,233
   
19
             
Corporate, other & eliminations
 
(2,682
)
 
(2,700
)
 
19
             
As reported in FCX’s consolidated financial statements
$
8,227
 
$
3,970
 
$
520
             
 
Indonesia Mining Product Revenues and Production Costs (continued)

Six Months Ended June 30, 2009
       
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Gold
 
Silver
 
Total
 
Revenues, excluding adjustments
$
1,650
 
$
1,650
 
$
1,230
 
$
40
 
$
2,920
 
                               
Site production and delivery, before net noncash
                             
and other costs shown below
 
740
   
418
   
312
   
10
   
740
 
Gold and silver credits
 
(1,270
)
 
–
   
–
   
–
   
–
 
Treatment charges
 
169
   
96
   
71
   
2
   
169
 
Royalty on metals
 
74
   
42
   
31
   
1
   
74
 
Net cash (credits) costs
 
(287
)
 
556
   
414
   
13
   
983
 
Depreciation and amortization
 
143
   
81
   
60
   
2
   
143
 
Noncash and other costs, net
 
25
   
14
   
11
   
–
   
25
 
Total (credits) costs
 
(119
)
 
651
   
485
   
15
   
1,151
 
Revenue adjustments, primarily for pricing on prior
                             
period open sales
 
55
   
55
   
–
   
–
   
55
 
PT Smelting intercompany loss
 
(37
)
 
(21
)
 
(15
)
 
(1
)
 
(37
)
Gross profit
$
1,787
 
$
1,033
 
$
730
 
$
24
 
$
1,787
 
                               
Reconciliation to Amounts Reported
                             
(In millions)
       
Depreciation,
             
     
Production
 
Depletion and
             
 
Revenues
 
and Delivery
 
Amortization
             
Totals presented above
$
2,920
 
$
740
 
$
143
             
Net noncash and other costs per above
 
N/A
   
25
   
N/A
             
Treatment charges per above
 
(169
)
 
N/A
   
N/A
             
Royalty on metals per above
 
(74
)
 
N/A
   
N/A
             
Revenue adjustments, primarily for pricing on prior
                             
period open sales per above
 
55
   
N/A
   
N/A
             
Indonesia mining
 
2,732
   
765
   
143
             
North America copper mines
 
1,321
   
1,014
   
139
             
South America mining
 
1,586
   
733
   
134
             
Africa mining
 
57
   
108
   
17
             
Molybdenum
 
332
   
300
a
 
22
             
Rod & Refining
 
1,366
   
1,357
   
4
             
Atlantic Copper Smelting & Refining
 
707
   
712
   
17
             
Corporate, other & eliminations
 
(1,815
)
 
(1,599
)
 
12
             
As reported in FCX’s consolidated financial statements
$
6,286
 
$
3,390
a
$
488
             
 
a.  
Includes LCM molybdenum inventory adjustments totaling $19 million.

 
Africa Mining Product Revenues and Production Costs

Three Months Ended June 30, 2010
               
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Cobalt
 
Total
 
Revenues, excluding adjustments
$
163
 
$
163
 
$
48
 
$
211
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
70
   
64
   
24
   
88
 
Cobalt credits
 
(30
) a
 
–
   
–
   
–
 
Royalty on metals
 
3
   
2
   
1
   
3
 
Net cash costs
 
43
   
66
   
25
   
91
 
Depreciation, depletion and amortization
 
30
   
26
   
4
   
30
 
Noncash and other costs, net
 
3
   
2
   
1
   
3
 
Total costs
 
76
   
94
   
30
   
124
 
Revenue adjustments, primarily for pricing on prior
                       
period open sales
 
–
   
–
   
–
   
–
 
Other non-inventoriable costs
 
(6
)
 
(5
)
 
(1
)
 
(6
)
Gross profit
$
81
 
$
64
 
$
17
 
$
81
 
                         
Reconciliation to Amounts Reported
                       
(In millions)
         
Depreciation,
       
       
Production
 
Depletion and
       
 
Revenues
 
and Delivery
 
Amortization
       
Totals presented above
$
211
 
$
88
 
$
30
       
Net noncash and other costs per above
 
N/A
   
3
   
N/A
       
Royalty on metals per above
 
(3
)
 
N/A
   
N/A
       
Revenue adjustments, primarily for pricing on prior
                       
period open sales per above
 
–
   
N/A
   
N/A
       
Other non-inventoriable costs per above
 
N/A
   
6
   
N/A
       
Eliminations and other
 
(1
)
 
(1
)
 
–
       
Africa mining
 
207
   
96
   
30
       
North America copper mines
 
1,044
   
537
   
71
       
South America mining
 
849
   
389
   
59
       
Indonesia mining
 
927
   
427
   
57
       
Molybdenum
 
325
   
190
   
12
       
Rod & Refining
 
1,129
   
1,121
   
2
       
Atlantic Copper Smelting & Refining
 
616
   
605
   
9
       
Corporate, other & eliminations
 
(1,233
)
 
(1,313
)
 
9
       
As reported in FCX’s consolidated financial statements
$
3,864
 
$
2,052
 
$
249
       
 
a.  
Net of cobalt downstream processing and freight costs.
 
Africa Mining Product Revenues and Production Costs (continued)

Six Months Ended June 30, 2010
               
 
By-Product
 
Co-Product Method
 
(In millions)
Method
 
Copper
 
Cobalt
 
Total
 
Revenues, excluding adjustments
$
377
 
$
377
 
$
87
 
$
464
 
                         
Site production and delivery, before net noncash
                       
and other costs shown below
 
160
   
151
   
40
   
191
 
Cobalt credits
 
(56
) a
 
–
   
–
   
–
 
Royalty on metals
 
8
   
7
   
1
   
8
 
Net cash costs
 
112
   
158
   
41
   
199
 
Depreciation, depletion and amortization
 
60
   
49
   
11
   
60
 
Noncash and other costs, net
 
4
   
3
   
1
   
4
 
Total costs
 
176
   
210
   
53
   
263
 
Revenue adjustments, primarily for pricing on prior
                       
period open sales
 
–
   
–
   
–
   
–
 
Other non-inventoriable costs
 
(12
)
 
(10
)
 
(2
)
 
(12
)
Gross profit
$
189
 
$
157
 
$
32
 
$
189
 
                         
Reconciliation to Amounts Reported
                       
(In millions)
         
Depreciation,
       
       
Production
 
Depletion and
       
 
Revenues
 
and Delivery
 
Amortization
       
Totals presented above
$
464
 
$
191
 
$
60
       
Net noncash and other costs per above
 
N/A
   
4
   
N/A
       
Royalty on metals per above
 
(8
)
 
N/A
   
N/A
       
Revenue adjustments, primarily for pricing on prior
                       
period open sales per above
 
–
   
N/A
   
N/A
       
Other non-inventoriable costs per above
 
N/A
   
12
   
N/A
       
Eliminations and other
 
–
   
(1
)
 
–
       
Africa mining
 
456
   
206
   
60
       
North America copper mines
 
2,098
   
1,001
   
153
       
South America mining
 
1,918
   
765
   
120
       
Indonesia mining
 
2,386
   
902
   
120
       
Molybdenum
 
600
   
375
   
25
       
Rod & Refining
 
2,202
   
2,188
   
4
       
Atlantic Copper Smelting & Refining
 
1,249
   
1,233
   
19
       
Corporate, other & eliminations
 
(2,682
)
 
(2,700
)
 
19
       
As reported in FCX’s consolidated financial statements
$
8,227
 
$
3,970
 
$
520
       
 
a.  
Net of cobalt downstream processing and freight costs.
 
Henderson Molybdenum Mine Product Revenues and Production Costs


 
Three Months Ended June 30,
       
(In millions)
2010
 
2009 a
       
Revenues, excluding adjustments
$
177
 
$
62
       
                   
Site production and delivery, before net noncash
                 
and other costs shown below
 
48
   
34
       
Treatment charges and other
 
11
   
7
       
Net cash costs
 
59
   
41
       
Depreciation, depletion and amortization
 
8
   
6
       
Noncash and other costs, net
 
–
   
–
       
Total costs
 
67
   
47
       
Gross profit b
$
110
 
$
15
       
                   
 
Reconciliation to Amounts Reported
     
Production
 
Depreciation,
 
(In millions)
     
and
 
Depletion and
 
   
Revenues
 
Delivery
 
Amortization
 
Three Months Ended June 30, 2010
                 
Totals presented above
$
177
 
$
48
 
$
8
 
Treatment charges and other per above
 
(11
)
 
N/A
   
N/A
 
Net noncash and other costs per above
 
N/A
   
–
   
N/A
 
Henderson mine
 
166
   
48
   
8
 
Other molybdenum operations and eliminations c
 
159
   
142
   
4
 
Molybdenum
 
325
   
190
   
12
 
North America copper mines
 
1,044
   
537
   
71
 
South America mining
 
849
   
389
   
59
 
Indonesia mining
 
927
   
427
   
57
 
Africa mining
 
207
   
96
   
30
 
Rod & Refining
 
1,129
   
1,121
   
2
 
Atlantic Copper Smelting & Refining
 
616
   
605
   
9
 
Corporate, other & eliminations
 
(1,233
)
 
(1,313
)
 
9
 
As reported in FCX’s consolidated financial statements
$
3,864
 
$
2,052
 
$
249
 
                   
Three Months Ended June 30, 2009
                 
Totals presented above
$
62
 
$
34
 
$
6
 
Treatment charges and other per above
 
(7
)
 
N/A
   
N/A
 
Net noncash and other costs per above
 
N/A
   
–
   
N/A
 
Henderson mine
 
55
   
34
   
6
 
Other molybdenum operations and eliminations c
 
131
   
128
   
7
 
Molybdenum
 
186
   
162
   
13
 
North America copper mines
 
703
   
461
   
64
 
South America mining
 
884
   
366
   
69
 
Indonesia mining
 
1,610
   
415
   
78
 
Africa mining
 
57
   
92
   
14
 
Rod & Refining
 
747
   
743
   
2
 
Atlantic Copper Smelting & Refining
 
415
   
419
   
9
 
Corporate, other & eliminations
 
(918
)
 
(849
)
 
7
 
As reported in FCX’s consolidated financial statements
$
3,684
 
$
1,809
 
$
256
 
 
a.  
Revenues and costs were adjusted to include freight and downstream conversion costs in net cash costs; gross profit was not affected by these adjustments.
 
b.  
Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum segment includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
 
c.   
Primarily includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced as a by-product at our North and South America copper mines.
 
Henderson Molybdenum Mine Product Revenues and Production Costs (continued)


 
Six Months Ended June 30,
       
(In millions)
2010
 
2009 a
       
Revenues, excluding adjustments
$
316
 
$
139
       
                   
Site production and delivery, before net noncash
                 
and other costs shown below
 
90
   
71
       
Treatment charges and other
 
21
   
14
       
Net cash costs
 
111
   
85
       
Depreciation, depletion and amortization
 
16
   
12
       
Noncash and other costs, net
 
1
   
–
       
Total costs
 
128
   
97
       
Gross profit b
$
188
 
$
42
       
                   
 
Reconciliation to Amounts Reported
     
Production
 
Depreciation,
 
(In millions)
     
and
 
Depletion and
 
   
Revenues
 
Delivery
 
Amortization
 
Six Months Ended June 30, 2010
                 
Totals presented above
$
316
 
$
90
 
$
16
 
Treatment charges and other per above
 
(21
)
 
N/A
   
N/A
 
Net noncash and other costs per above
 
N/A
   
1
   
N/A
 
Henderson mine
 
295
   
91
   
16
 
Other molybdenum operations and eliminations c
 
305
   
284
   
9
 
Molybdenum
 
600
   
375
   
25
 
North America copper mines
 
2,098
   
1,001
   
153
 
South America mining
 
1,918
   
765
   
120
 
Indonesia mining
 
2,386
   
902
   
120
 
Africa mining
 
456
   
206
   
60
 
Rod & Refining
 
2,202
   
2,188
   
4
 
Atlantic Copper Smelting & Refining
 
1,249
   
1,233
   
19
 
Corporate, other & eliminations
 
(2,682
)
 
(2,700
)
 
19
 
As reported in FCX’s consolidated financial statements
$
8,227
 
$
3,970
 
$
520
 
                   
Six Months Ended June 30, 2009
                 
Totals presented above
$
139
 
$
71
 
$
12
 
Treatment charges and other per above
 
(14
)
 
N/A
   
N/A
 
Net noncash and other costs per above
 
N/A
   
–
   
N/A
 
Henderson mine
 
125
   
71
   
12
 
Other molybdenum operations and eliminations c
 
207
   
229
d
 
10
 
Molybdenum
 
332
   
300
   
22
 
North America copper mines
 
1,321
   
1,014
   
139
 
South America mining
 
1,586
   
733
   
134
 
Indonesia mining
 
2,732
   
765
   
143
 
Africa mining
 
57
   
108
   
17
 
Rod & Refining
 
1,366
   
1,357
   
4
 
Atlantic Copper Smelting & Refining
 
707
   
712
   
17
 
Corporate, other & eliminations
 
(1,815
)
 
(1,599
)
 
12
 
As reported in FCX’s consolidated financial statements
$
6,286
 
$
3,390
d
$
488
 
 
a.  
Revenues and costs were adjusted to include freight and downstream conversion costs in net cash costs; gross profit was not affected by these adjustments.
 
b.   
Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum segment includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
 
c.   
Primarily includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced as a by-product at our North and South America copper mines.
 
d.   
Includes LCM molybdenum inventory adjustments totaling $19 million.
 
CAUTIONARY STATEMENT

Our discussion and analysis contains forward-looking statements in which we discuss our expectations regarding future performance. Forward-looking statements are all statements other than statements of historical facts, such as those statements regarding anticipated production volumes, sales volumes, unit net cash costs, ore grades, milling rates, commodity prices, development and other capital expenditures, mine production and development plans, environmental liabilities, potential future dividend payments, reserve estimates, projected exploration efforts and results, operating cash flows, the impact of copper, gold, molybdenum and cobalt price changes, the impact of deferred intercompany profits on earnings, liquidity, other financial commitments and tax rates. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements that are not historical facts, in each case as they relate to us or our management, are intended to identify those assertions as forward-looking statements.

In making any forward looking statements, the person making them believes that the expectations are based on reasonable assumptions. We caution readers that those statements are not guarantees of future performance, and our actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include commodity prices, mine sequencing, production rates, industry risks, regulatory changes, political risks, the potential effects of the recent violence in Indonesia, potential outcomes of the contract review process and resolution of administrative disputes in the DRC, weather-related risks, labor relations, environmental risks, litigation results, currency translation risks and other factors described in more detail under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2009.

Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made, including for example commodity prices, which we cannot control, and production volumes and costs, some aspects of which we may or may not be able to control. Further, during the quarter, we may make changes to our business plans that could or will affect our results for the quarter. We caution investors that we do not intend to update our forward-looking statements more frequently than quarterly, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes, and we undertake no obligation to update any forward-looking statements

Item 3 .   Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risks during the six months ended June 30, 2010. For additional information on market risks, refer to “Disclosures About Market Risks” included in Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 2009. For projected sensitivities of our operating cash flow to changes in commodity prices, refer to “Outlook” in Part I, Item 2 of this quarterly report on Form 10-Q; for projected sensitivities of our provisionally priced copper sales to changes in commodity prices refer to “Consolidated Results – Revenues” in Part I, Item 2 of this quarterly report on Form 10-Q.

Item 4 .   Controls and Procedures.

(a)  
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation, they have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

(b)  
Changes in internal control. There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
PART II .  OTHER INFORMATION


Environmental Proceedings

Gilt   Edge Mine Site.   On July 12, 2010, we received a letter from the United States (U.S.) Department of Justice, acting at the request of the U.S. Environmental Protection Agency, advising us that the U.S. is preparing to file suit in federal court against two of our wholly owned subsidiaries (Cyprus Mines Corporation and Cyprus Amax Minerals Company, Inc.) and several other parties for recovery of costs incurred or to be incurred by the U.S. in responding to the release or threatened release of hazardous substances at the Gilt Edge Mine Site in Lawrence County, South Dakota.  The letter stated that the U.S. will assert that the Cyprus entities are jointly and severally liable with the other parties for all response costs incurred by the U.S. at this site under the Comprehensive Environmental Response, Compensation and Liability Act.  The letter asserts that the U.S. has incurred approximately $91 million in response costs and will incur additional response costs in the future. We do not know whether the other parties could contribute materially to reimbursement of these response costs. 

We have conducted a detailed investigation of this site and have concluded that the Cyprus entities were engaged only in a mineral exploration project and were not involved in the large-scale mining operation that left the site in its current condition.  We believe there is a reasonable basis for apportioning the response costs based on historical records of activities at the site, so that under recent federal case law the liability of the Cyprus entities should be proportional to the actual harm done, rather than joint and several, as the government asserts.  As a result, we intend to vigorously defend this matter if the government files suit.

Item 1A .   Risk Factors.

There have been no material changes to our risk factors during the six months ended June 30, 2010. For additional information on risk factors, refer to “Risk Factors” included in Part I, Item 1A of our report on Form 10-K for the year ended December 31, 2009.

Item 2 .   Unregistered Sales of Equity Securities and Use of Proceeds.

(c)  
The following table sets forth information with respect to shares of FCX common stock purchased by us during the three months ended June 30, 2010:

             
(c) Total Number of
 
(d) Maximum Number
   
(a) Total Number
 
(b) Average
 
Shares Purchased as Part
 
of Shares That May
   
of Shares
 
Price Paid
 
of Publicly Announced
 
Yet Be Purchased Under
Period
 
Purchased a
 
Per Share
 
Plans or Programs b
 
the Plans or Programs b
April 1-30, 2010
 
–
 
$
–
 
–
 
23,685,500
May 1-31, 2010
 
–
 
$
–
 
–
 
23,685,500
June 1-30, 2010
 
–
 
$
–
 
–
 
23,685,500
Total
 
–
 
$
–
 
–
 
23,685,500
                   
a.   
Consists of shares repurchased under FCX’s applicable stock incentive plans, which were repurchased to satisfy tax obligations on restricted stock awards and to cover the cost of option exercises.
 
b.   
On July 21, 2008, our Board of Directors approved an increase in our open-market share purchase program for up to 30 million shares. This program does not have an expiration date.

Item 6 .   Exhibits.

The exhibits to this report are listed in the Exhibit Index beginning on Page E-1 hereof.

FREEPORT-McMoRan COPPER & GOLD INC.


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FREEPORT-McMoRan COPPER & GOLD INC.

By:           /s/ C. Donald Whitmire, Jr.                                                       
C. Donald Whitmire, Jr.
Vice President and
Controller – Financial Reporting
(authorized signatory and
Principal Accounting Officer)


Date:  August 6, 2010
 

FREEPORT-McMoRan COPPER & GOLD INC.
   
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
Composite Certificate of Incorporation of FCX.
X
     
3.2
Amended and Restated By-Laws of FCX, as amended through February 2, 2010.
 
8-K
001-11307-01
02/05/2010
10.1*
FCX Amended and Restated 2006 Stock Incentive Plan.
 
8-K
001-11307-01
6/14/2010
10.2*
Form of Notice of Grant of Nonqualified Stock Options and Restricted Stock Units under the 2006 Stock Incentive Plan.
 
8-K
001-11307-01
6/14/2010
FCX 2004 Director Compensation Plan, as amended and restated.
X
     
Letter from Ernst & Young LLP regarding unaudited interim financial statements.
X
     
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
     
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
     
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
X
     
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350.
X
     
101.INS
XBRL Instance Document.
X
     
101.SCH
XBRL Taxonomy Extension Schema.
X
     
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
X
     
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
X
     
101.LAB
XBRL Taxonomy Extension Label Linkbase.
X
     
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
X
     

*  Indicates management contract or compensatory plan or arrangement.
 
E-1
Exhibit 3.1
 


Composite Certificate of Incorporation of
Freeport-McMoRan Copper & Gold Inc.

FIRST:  The name of the corporation is Freeport-McMoRan Copper & Gold Inc.

SECOND:  The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company.

THIRD:  The nature of the business or purposes to be conducted or promoted are:

(a)           To enter into, maintain, operate and carry on the business of mining in all its branches in the United States of America and in any other part of the world, and to quarry, mine, pump, extract, remove and otherwise produce, and to grind, treat, concentrate, smelt, refine, dress and otherwise prepare, produce, buy, sell and in every way deal in and with minerals, ores, concentrates and other mineral and chemical substances of all kinds, metallic and nonmetallic, including, but without in any way limiting the generality of the foregoing, antimony, barite, chromium, coal, cobalt, copper, gas, gold, iron, lead, molybdenum, nickel, oil, potash, salt, silica, sand, silver, sulphur, tantalum, tin, titanium, tungsten, uranium, zinc, and ores and concentrates thereof.

(b)           To purchase, locate, denounce or otherwise acquire, take, hold and own, and to assign, transfer, lease, exchange, mortgage, pledge, sell or otherwise dispose of and in any manner deal with and contract with reference to, mines, wells, mining claims, mining rights, mineral lands, mineral leases, mineral rights, royalty rights, water rights, timber lands, timber and timber rights, and real and personal property of every kind, and any interest therein, in the United States of America or in any other country, to prospect, explore, work, exercise, develop, manage, operate and turn the same to account, and to engage in mining, geological, economic, feasibility, development, and other studies in the United States of America or in any other country.

(c)           To make, manufacture, treat, process, produce, buy, sell and in every way deal in and with minerals, ores, concentrates and chemicals of every description, organic or inorganic, natural or synthetic, in the form of raw materials, intermediate or finished products and any other related products and substances whatsoever related thereto or of a like or similar nature or which may enter into the manufacture of any of the foregoing or be used in connection therewith, and derivatives and by-products derived from the manufacture thereof and products to be made therefrom and generally without limitation by reference of the foregoing, all other products and substances of every kind, character and description.

(d)           To engage in any lawful act or activity, whether or not related to the foregoing, for which corporations may be organized under the General Corporation Law of Delaware.

 
 
 
FOURTH:                      (a) Authorized Stock. The total number of shares of capital stock that the corporation shall have authority to issue is 1,850,000,000 shares, consisting of 50,000,000 shares of Preferred Stock, par value $0.10 per share, and 1,800,000,000 shares of Common Stock, par value $0.10 per share.

(b)            Common Stock .  The powers, preferences, rights, qualifications, limitations and restrictions of the shares of Common Stock shall be as follows:

(1)            Cash or Property Dividends .  Subject to the rights and preferences of the Preferred Stock as set forth in any resolution or resolutions of the Board of Directors providing for the issuance of such stock pursuant to Section (c) of this Article FOURTH, and except as otherwise provided for herein, the holders of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such per share amounts as the Board of Directors may from time to time determine.

(2)            Voting .  (A)  With respect to the election of directors, holders of  Common Stock and holders of Voting Preferred Stock (as defined below), shall vote together for the election of members of the Board of Directors.  Each share of Common Stock and each share of Voting Preferred Stock shall have one vote in the election of directors.  The “Voting Preferred Stock” means any series of Preferred Stock upon which the right to vote for directors pursuant to this Section (b)(2) has been conferred in accordance with Section (c)(6) of this Article FOURTH.

(B)           Any director may be removed, with cause, by a vote of the holders of Common Stock and the holders of Voting Preferred Stock, voting together.

(3)            Vacancies; Increases or Decreases in Size of the Board of Directors .  Any vacancy in the office of a director created by the death, resignation or removal of a director may be filled by a vote of holders of Common Stock and holders of Voting Preferred Stock, voting together.  Notwithstanding anything in this Section (b)(3) to the contrary, any vacancy in the office of a director may also be filled by the vote of the majority of the remaining directors, regardless of any quorum requirements set out in the by-laws.  Any director elected to fill a vacancy shall hold office for the remainder of the full term of the director whose vacancy is being filled and until such director’s successor shall have been elected and qualified unless removed and replaced pursuant to Section (b)(2)(B) of this Article FOURTH and this Section (b)(3).  The Board of Directors may increase the number of directors and any newly-created directorship so created may be filled by the Board of Directors.  Any director elected (or appointed) in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created and until such director’s successor shall have been elected and qualified unless removed and replaced pursuant to Section (b)(2)(B) of this
 
 
2
 
Article FOURTH and this Section (b)(3).  No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.  If the number of directors is changed, any increase or decrease shall be apportioned among the classes of directors established pursuant to Article FIFTH so as to maintain the number of directors in each class as nearly equal as possible.

(c)            Preferred Stock .  The Preferred Stock may be divided into and issued in series.  The Board of Directors is hereby expressly authorized, at any time or from time to time, to divide any or all of the shares of the Preferred Stock into series, and in the resolution or resolutions establishing a particular series, before issuance of any of the shares thereof, to fix and determine the powers, designations, preferences and relative, participating, optional or other rights, and any qualifications, limitations or restrictions, of the series so established, to the fullest extent now or hereafter permitted by the laws of the State of Delaware, including, but not limited to, the variations between the different series in the following respects:

(1)
The distinctive serial designation of such series;

(2)
The annual dividend rate for such series, and the date or dates from which dividends shall commence to accrue;

(3)
The redemption price or prices, if any, for shares of such series and the terms and conditions on which such shares may be redeemed;

(4)
The sinking fund provisions, if any, for the redemption or purchase of shares of such series;

(5)
The preferential amount or amounts payable upon shares of such series in the event of the voluntary or involuntary liquidation of the corporation;

(6)
The voting rights of shares of such series;

(7)
The terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of shares of the corporation into which such shares may be converted; and

(8)
Such other terms, limitations and relative rights and preferences, if any, of shares of such series as the Board of Directors may, at the time of such resolutions, lawfully fix and determine under the laws of the State of Delaware.

 
All shares of the Preferred Stock shall be of equal rank with each other, regardless of series.
 
 
3
 
 
(d)  
General .

(1)           Except as otherwise required by law and except as may be stated in the resolution or resolutions of the Board of Directors providing for the issue of any series of Preferred Stock, the holders of any such series of Preferred Stock shall have no voting power whatsoever.  Subject to such restrictions as may be stated in the resolution or resolutions of the Board of Directors providing for the issue of any series of Preferred Stock, any amendment to this Amended and Restated Certificate of Incorporation which shall increase or decrease the authorized stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the corporation irrespective of the provisions of Section 242(b)(2) of Delaware General Corporation Law.

(2)           No holder of stock of any series or class of stock of the corporation shall as such holder have under this Amended and Restated Certificate of Incorporation any preemptive or preferential right of subscription to any stock of any series or class of stock of the corporation or to any obligations convertible into stock of the corporation, issued or sold, or to any right of subscription to, or to any warrant or option for the purchase of any thereof.

(3)           Except as otherwise stated in this Amended and Restated Certificate of Incorporation, the corporation may from time to time issue and dispose of any of the authorized and unissued shares of Common Stock or Preferred Stock for such consideration, not less than its par value, as may be fixed from time to time by the Board of Directors, without action by the stockholders.  The Board of Directors may provide for payment therefor to be received by the corporation in cash, property or services rendered.  Any and all such shares of Common Stock or Preferred Stock the issuance of which has been so authorized, and for which consideration so fixed by the Board of Directors has been paid or delivered, shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon.

FIFTH:                      (a) Subject to such rights to elect additional directors under specified circumstances as may be granted to holders of any shares of the Preferred Stock pursuant to the provisions of Article FOURTH, the number of directors of the corporation shall be fixed from time to time by the Board of Directors but shall not be less than five.

(b) Subject to such rights to elect directors under specified circumstances as may be granted to holders of any shares of the Preferred Stock pursuant to the provisions of Article FOURTH, any director elected by the stockholders or elected by the Board of Directors to fill a vacancy shall hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified.

SIXTH:  In furtherance and not in limitation of the powers conferred by law, (a) the Board of Directors is expressly authorized to adopt, amend or repeal the by-laws of the corporation in any manner not inconsistent with the laws of the State of Delaware or
 
4
 
the Amended and Restated Certificate of Incorporation of the corporation, subject to the power of the stockholders to adopt, amend or repeal the by-laws or to limit or restrict the power of the Board of Directors to adopt, amend or repeal the by-laws, and (b) the corporation may in its by-laws confer powers and authorities upon its Board of Directors in addition to those conferred upon it by statute.

SEVENTH:  The affirmative vote of the holders of not less than 66 2/3% of the outstanding shares of Common Stock shall be required for the approval or authorization of any Business Combination; provided, however, that the 66 2/3% voting requirement shall not be applicable if

(a)           the Board of Directors of the corporation by affirmative vote which shall include not less than a majority of the entire number of Continuing Directors (1) has approved in advance the acquisition of those outstanding shares of Common Stock which caused the Interested Party to become an Interested Party or (2) has approved the Business Combination;

(b)           the Business Combination is solely between the corporation and one or more other corporations all of the common stock of each of which other corporations is owned directly or indirectly by the corporation or between two or more of such other corporations; or

(c)           the Business Combination is a merger or consolidation and the cash and/or fair market value of the property, securities or other consideration to be received per share by holders of Common Stock in the Business Combination is at least equal to the highest price per share (after giving effect to appropriate adjustments for any recapitalizations and for any stock splits, stock dividends and like distributions) paid by the Interested Party in acquiring any shares of Common Stock on the date when last acquired or during a period of two years prior thereto.

(d)           For purposes of this Article SEVENTH:

(1)           The terms “affiliate” and “associate” shall have the respective meanings assigned to those terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such Rule was in effect on the Initial Filing Date.

(2)           A person shall be deemed to be a “beneficial owner” of any Common Stock

(A)           which such person or any of its affiliates or associates beneficially owns, directly or indirectly; or

(B)           which such person or any of its affiliate or associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights,
 
5
 
warrants or options, or otherwise, or has the right to vote pursuant to any agreement, arrangement or understanding; or

(C)           which are beneficially owned, directly or indirectly, by any other person with which such person or any of its affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Common Stock.

(3)           The term “Business Combination” shall mean (A) any merger or consolidation of the corporation or a subsidiary of the corporation with or into an Interested Party, (B) any merger or consolidation of an Interested Party with or into the corporation or a subsidiary, (C) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of all or any Substantial Part of the assets either of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary, in which an Interested Party is involved, (D) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of any Interested Party, (E) the issuance or transfer (in one transaction or a series of transactions) by the corporation or a subsidiary of the corporation to an Interested Party of any securities of the corporation or such subsidiary, which securities have a fair market value of $10,000,000 or more, or (F) any recapitalization, reclassification, merger or consolidation involving the corporation or a subsidiary of the corporation that would have the effect of increasing, directly or indirectly, the Interested Party’s voting power in the corporation or such subsidiary.

(4)           The term “Interested Party” shall mean and include (A) any individual, corporation, partnership, trust or other person or entity which, together with its affiliates and associates, is (or with respect to a Business Combination was within two years prior thereto) a beneficial owner of shares aggregating 20% or more of the outstanding Common Stock or any class thereof, and (B) any affiliate or associate of any such individual, corporation, partnership, trust or other person or entity.  For the purposes of determining whether a person is an Interested Party the number of shares deemed to be outstanding shall include shares deemed beneficially owned through application of subclause (B) of the foregoing clause (2) but shall not include any other shares of Common Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

(5)           The term “Substantial Part” shall mean more than 10% of the fair market value of the total assets of the particular corporation.

(6)           The term “Continuing Director” shall mean a director who is not an affiliate of an Interested Party and who was a member of the Board of Directors of the corporation immediately prior to the time that the Interested Party involved in a Business Combination became an Interested Party, and any successor to a Continuing Director who is not such an affiliate and who is
 
6
 
nominated to succeed a Continuing Director by a majority of the Continuing Directors in office at the time of such nomination.

(7)           For the purposes of Section (c) of this Article SEVENTH, the term “other consideration to be received” shall include without limitation Common Stock retained by its existing public stockholders in the event of a Business Combination in which the corporation is the surviving corporation.

(e)           The provisions of this Article SEVENTH shall be construed liberally to the end that the consideration paid to holders whose Common Stock is acquired by an Interested Party in connection with a Business Combination to which Section (c) of this Article SEVENTH is applicable shall be not less favorable than that paid to holders of such Common Stock prior to such Business Combination.  Nothing contained in this Article SEVENTH shall be construed to relieve any Interested Party from any fiduciary duties or obligations imposed by law, nor shall anything herein be deemed to supersede any vote of holders of any series or class of stock other than Common Stock that shall be required by law, by or pursuant to this Amended and Restated Certificate of Incorporation or by the by-laws of the corporation.

(f)           Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or the by-laws of the corporation and notwithstanding the fact that a lesser percentage may be specified by law, this Amended and Restated Certificate of Incorporation or the by-laws of the corporation, the affirmative vote of the holders of 66 2/3% or more of the shares of the outstanding Common Stock shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article SEVENTH.

EIGHTH:                      (a)  A director of this corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the Delaware General Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit.

(b)           The corporation shall indemnify any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by applicable law.  The determination as to whether such person has met the standard required for indemnification shall be made in accordance with applicable law.

Expenses incurred by such a director, officer, employee or agent in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that
 
7
 
he is not entitled to be indemnified by the corporation as authorized in this Article EIGHTH.

(c)           The provisions of this Article EIGHTH shall be deemed to be a contract between the corporation and each person who serves as such director, officer, employee or agent of the corporation in any such capacity at any time while this Article EIGHTH is in effect.  No repeal or modification of the foregoing provisions of this Article EIGHTH nor, to the fullest extent permitted by law, any modification of law shall adversely affect any right or protection of a director, officer, employee or agent of the corporation existing at the time of such repeal or modification.

The foregoing indemnification shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any applicable law, by-law, agreement, vote of stockholders or disinterested directors or otherwise.

NINTH:  The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

______________________________

 
 
                                                              
 
8
 

Exhibit 10.3
 

FREEPORT-MCMORAN COPPER & GOLD INC.
2004 DIRECTOR COMPENSATION PLAN


1.   Purpose of the Plan.
 
The purpose of the Freeport-McMoRan Copper & Gold Inc. 2004 Director Compensation Plan is to promote the interests of the Company and its stockholders by strengthening the Company’s ability to attract, motivate and retain directors of experience and ability, and to encourage the highest level of director performance by providing directors with (i) a proprietary interest in the Company’s financial success and growth through the ability to elect to receive compensation in shares of Common Stock and (ii) the ability to defer compensation.  As originally approved by stockholders, Section 5 of the Plan also provided for annual and one-time grants of Awards to Directors and Advisory Directors, but there are no longer sufficient shares remaining available for future Awards under the Plan.
 
2.   Definitions.
 
For purposes of this Plan, the following terms shall have the meanings indicated:
 
2.1   “Advisory Director” means a person designated as such by the Board.
 
2.2   “Award” means any Option, Restricted Stock Unit or Stock Appreciation Right granted under this Plan.
 
2.3   “Award Notice” means any written or electronic notice of grant, evidencing any Award.
 
2.4   “Board” means the Board of Directors of the Company.
 
2.5   “Cash Compensation” means the annual cash retainer paid to an Eligible Director and any meeting fees, but does not include any expense reimbursement paid to an Eligible Director.
 
2.6   “Change of Control.”
 
(a)   “Change of Control” means (capitalized terms not otherwise defined will have the meanings ascribed to them in paragraph (b) below):
 
(i)   the acquisition by any Person together with all Affiliates of such Person, of Beneficial Ownership of the Threshold Percentage or more; provided, however, that for purposes of this Section 2.6(a)(i), the following will not constitute a Change of Control:
 
(A)   any acquisition (other than a “Business Combination,” as defined below, that constitutes a Change of Control under Section 2.6(a)(iii) hereof) of Common Stock directly from the Company,
 
 
 
(B)   any acquisition of Common Stock by the Company or its subsidiaries,
 
(C)   any acquisition of Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation or other entity controlled by the Company, or
 
(D)   any acquisition of Common Stock pursuant to a Business Combination that does not constitute a Change of Control under Section 2.6(a)(iii) hereof; or
 
(ii)   individuals, excluding the representatives of Rio Tinto (as defined below), who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual, excluding any representative of Rio Tinto, becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered a member of the Incumbent Board, unless such individual’s initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or any other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or
 
(iii)   the consummation of a reorganization, merger or consolidation (including a merger or consolidation of the Company or any direct or indirect subsidiary of the Company), or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination:
 
(A)   the individuals and entities who were the Beneficial Owners of the Company Voting Stock immediately prior to such Business Combination have direct or indirect Beneficial Ownership of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the Post-Transaction Corporation, and
 
(B)   no Person together with all Affiliates of such Person (excluding the Post-Transaction Corporation and any employee benefit plan or related trust of either the Company, the Post Transaction Corporation or any subsidiary of either corporation) Beneficially Owns 30% or more of the then outstanding shares of common stock of the Post Transaction Corporation or 30% or more of the combined voting power of the then outstanding voting securities of the Post Transaction Corporation; provided, that if that certain Agreement dated as of May 2, 1995 by and between the Company and Rio Tinto remains in effect as it may be amended from time to time with respect to the Post Transaction Corporation, then Rio Tinto and its Affiliates may Beneficially Own any amount less than the number of shares of the Post Transaction Corporation that could elect a majority of the directors of the Post Transaction Corporation if all directors were to be elected at a single meeting, and
 
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(C)   at least a majority of the members of the board of directors of the Post-Transaction Corporation were members of the Incumbent Board at the time of the execution of the initial agreement, and of the action of the Board, providing for such Business Combination; or
 
(iv)   approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
 
(b)   As used in this Section 2.6 and elsewhere in this Plan, the following terms have the meanings indicated:
 
(i)   “Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another specified Person.
 
(ii)   “Beneficial Owner” (and variants thereof), with respect to a security, means a Person who, directly or indirectly (through any contract, understanding, relationship or otherwise), has or shares (A) the power to vote, or direct the voting of, the security, and/or (B) the power to dispose of, or to direct the disposition of, the security.
 
(iii)   “Company Voting Stock” means any capital stock of the Company that is then entitled to vote for the election of directors.
 
(iv)   “Effective Date” means the date this Plan is approved by the Company’s stockholders.
 
(v)   “Majority Shares” means the number of shares of Company Voting Stock that could elect a majority of the directors of the Company if all directors were to be elected at a single meeting.
 
(vi)   “Person” means a natural person or entity, and will also mean the group or syndicate created when two or more Persons act as a syndicate or other group (including without limitation a partnership, limited partnership, joint venture or other joint undertaking) for the purpose of acquiring, holding, or disposing of a security, except that “Person” will not include an underwriter temporarily holding a security pursuant to an offering of the security.
 
(vii)   “Post-Transaction Corporation”:  Unless a Change of Control includes a Business Combination, “Post-Transaction Corporation” means the Company after the Change of Control.  If a Change of Control includes a Business Combination, “Post-Transaction Corporation” will mean the corporation or other entity resulting from the Business Combination unless, as a result of such Business Combination, an ultimate parent entity controls the Company or all or substantially all of the Company’s assets either directly or indirectly, in which case, “Post Transaction Corporation” will mean such ultimate parent entity.
 
(viii)   “Threshold Percentage”: (A) As long as that certain Agreement dated as of May 2, 1995, by and between the Company and Rio Tinto Indonesia Limited (“Rio Tinto”) remains in effect as it may be amended from time to time, “Threshold Percentage” means
 
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with respect to Rio Tinto and its Affiliates, that percentage of Common Stock that would result in Rio Tinto and its Affiliates having Beneficial Ownership of shares of Company Voting Stock equal to or greater than the Majority Shares; provided that, solely for purposes of such calculation, the shares of Company Voting Stock issuable upon exercise of warrants, options or other rights, or upon conversion or exchange of convertible or exchangeable securities, owned by Rio Tinto and its Affiliates, will be treated as outstanding Company Voting Stock.  (B) With respect to any other Person and its Affiliates, “Threshold Percentage” means 30% of all then outstanding Common Stock.
 
2.7   “Committee” means the Nominating and Corporate Governance Committee of the Board or a subcommittee thereof.  The Committee shall consist of not fewer than two members of the Board of Directors, each of whom shall (a) qualify as a “non-employee director” under Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the “1934 Act”), or any successor rule, and (b) qualify as an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”), and the regulations promulgated thereunder.
 
2.8   “Common Stock” means the common stock, $0.10 par value per share, of the Company.
 
2.9   “Company” means Freeport-McMoRan Copper & Gold Inc., a Delaware corporation.
 
2.10   “Director” means each member of the Board who is not employed by the Company or any of its subsidiaries.
 
2.11   “Eligible Director” means each Director and Advisory Director, and includes, for purposes of Sections 6.6 and 7.6 hereof only, former Directors and Advisory Directors who continue to provide services to the Company or a subsidiary of the Company pursuant to a consulting or other arrangement.
 
2.12   “Fair Market Value.”  Except as provided below in connection with a cashless exercise through a broker or the vesting of Restricted Stock Units, for any purpose relevant under the Plan, the fair market value of a share of Common Stock or any other security shall be the closing per share or security sale price on the Composite Tape for New York Stock Exchange-Listed Stocks on the date in question or, if there are no reported sales on such date, on the last preceding date on which any reported sale occurred.  If on the date in question the shares of Common Stock or other securities in question are not listed on such Composite Tape, the fair market value shall be the closing sale price on the New York Stock Exchange on such date or, if no sales occurred on such date, on the last previous day on which a sale on the New York Stock Exchange is reported.  In the context of a cashless exercise through a broker, the fair market value shall be the price at which the shares of Common Stock are actually sold.  In the context of the vesting of Restricted Stock Units, the fair market value of a share of Common Stock or any other security shall be the closing per share or security sale price on the Composite Tape for New York Stock Exchange-Listed Stocks on the business day immediately preceding the vesting date or, if there are no reported sales on such date, on the last preceding date on which any reported sale occurred.
 
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2.13   “Grant Date” means June 1, 2004, and each subsequent anniversary thereof throughout the term of this Plan, provided shares of Common Stock remain available for issuance hereunder.
 
2.14   “Participant” means any individual granted an Award under this Plan.
 
2.15   “Option” means a stock option granted under Section 5 of this Plan that does not satisfy the requirements of Section 422 of the Code.
 
2.16   “Plan” means the Freeport-McMoRan Copper & Gold Inc. 2004 Director Compensation Plan as set forth herein and as amended, restated, supplemented or otherwise modified from time to time.
 
2.17   “Restricted Stock Unit” or “RSU” means an award of restricted stock units granted under Section 5 of this Plan.
 
2.18   “Stock Appreciation Right” or “SAR” means an award of stock appreciation rights granted under Section 5 of this Plan.
 
3.   Shares of Common Stock Subject to the Plan.
 
3.1   Subject to the adjustment provisions of Section 11, the aggregate number of shares of Common Stock that may be issued pursuant to the terms of the Plan shall be 1,000,000.  Shares issued or delivered upon the exercise of Options or the vesting of RSUs may be either authorized but unissued shares or shares issued and thereafter acquired by the Company.
 
3.2   To the extent any shares of Common Stock subject to an Award are not issued because the Award is forfeited or cancelled or the Award is paid in cash, such shares shall again be available for grant pursuant to Awards granted under the Plan.  If the exercise price of any Option granted under this Plan is satisfied by tendering shares of Common Stock to the Company (by either actual delivery or by attestation), only the number of shares of Common Stock issued net of the shares of Common Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Common Stock available for delivery under the Plan.
 
4.   Administration of the Plan.
 
4.1   The Plan shall be administered by the Committee, which shall have the power to interpret the Plan and, subject to its provisions, to prescribe, amend and rescind Plan rules and to make all other determinations necessary for the Plan’s administration.
 
4.2   All action taken by the Committee in the administration and interpretation of the Plan shall be final and binding upon all parties.  No member of the Committee will be liable for any action or determination made in good faith by the Committee with respect to the Plan or any Award.
 
4.3   The Committee does not have the authority to make discretionary grants of Awards under the Plan. Grants may be made only as provided in Section 5 hereof.
 
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5.   Grant of Options, Restricted Stock Units and Stock Appreciation Rights.
 
5.1   On each Grant Date, each Eligible Director shall be automatically granted
 
(a)   an Option to acquire 10,000 shares of Common Stock; and
 
(b)   2,000 Restricted Stock Units.
 
5.2   While the Plan remains in effect and shares of Common Stock remain available for issuance hereunder, upon any person’s initial election or appointment as an Eligible Director, otherwise than at an annual meeting of stockholders, such person shall be granted an Option and RSUs as follows:
 
(a)   If less than six full calendar months have elapsed since the most recent Grant Date, then the Eligible Director shall receive an Option to acquire 10,000 shares of Common Stock and 2,000 Restricted Stock Units; or
 
(b)   If six or more full calendar months have elapsed since the most recent Grant Date, then the Eligible Director shall receive an Option to acquire 5,000 shares of Common Stock and 1,000 Restricted Stock Units.
 
5.3   On February 9, 2004, two Directors resigned from the Board and were appointed Advisory Directors.  All outstanding incentive awards previously granted to such directors under the Company’s 1995 Stock Option Plan for Non-Employee Directors and the Company’s Stock Appreciation Rights Plan were or will be terminated under the terms of those plans as a result of such individuals’ resignations from the Board.  Accordingly, on May 9, 2004, the following Advisory Directors will receive a one-time grant of Options and SARs as described below to replace the previously granted awards that have or will terminate.
 
(a)   Gabrielle K. McDonald shall receive Options to acquire 79,517 shares of Common Stock and 52,131 SARs related to an equal number of shares of Common Stock, which Options and SARs shall have the specific terms described on Annex A hereto.
 
(b)   J. Stapleton Roy shall receive Options to acquire 22,500 shares of Common Stock and 14,751 SARs related to an equal number of shares of Common Stock, which Options and SARs shall have the specific terms described on Annex A hereto.
 
6.   Terms and Conditions of Options and Stock Appreciation Rights.
 
6.1   Unless exercisability is accelerated as provided in Section 12.1 hereof and except for grants described in Section 5.3 hereof, the Options shall become exercisable in one-quarter increments on the first, second, third and fourth anniversaries of the applicable Grant Date.
 
6.2   Unless terminated earlier as provided in Sections 5.3, 6.6 or 12.2, the Options shall expire ten years following the applicable Grant Date.
 
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6.3   Except for grants described in Section 5.3, the exercise price of the Options granted to Eligible Directors shall be equal to the Fair Market Value, as defined herein, of a share of Common Stock on the applicable Grant Date.
 
6.4   Options must be exercised by delivering written notice to the Company or any person or entity designated by the Company on forms approved by the Company and payment of the purchase price thereof in full.  Any such exercise shall be effective upon receipt by the Company or its designee of such notice and such payment.  Unless the Committee shall determine otherwise in any particular case, such payment may be made by (a) cash, (b) cash equivalent (which may be the personal check of the exercising holder of the Option), (c) by tendering shares of Common Stock, either by actual delivery or by attestation, that are owned by such holder and that have been held by the Participant or eligible transferee for at least six months, or (d) instructing a broker approved by the Company to sell shares of Common Stock acquired upon the exercise of the option and to remit to the Company a sufficient portion of the cash proceeds to pay the exercise price; or (e) a combination thereof, in each case having an aggregate Fair Market Value equal to the aggregate exercise price of the portion of the Option being exercised.
 
6.5   Any provision of this Plan or any Award Notice to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to such canceled Award.  Notwithstanding the foregoing, except for adjustments permitted under Sections 11 and 12.2 hereof, no action by the Committee shall cause a reduction in the exercise price of Options granted under the Plan without the approval of the stockholders of the Company.  The determinations of value under this subparagraph shall be made by the Committee in its sole discretion.
 
6.6   (a)           For purposes of this Section 6.6, if a Participant continues to provide services to the Company or a subsidiary of the Company pursuant to a consulting or other arrangement, the Participant will not “cease to be an Eligible Director” until such time as the Participant no longer provides such services.
 
(b)   If a Participant ceases to be an Eligible Director for any reason other than death, retirement from the Board or disability (as defined in Section 6.6(f)), all of the Options and SARs granted to such Participant while serving as an Eligible Director shall be terminated except that any Options and SARs, to the extent then exercisable, may be exercised by the holder thereof within three months after such Participant ceases to be an Eligible Director, but not later than the termination date of the Award.
 
(c)   If a Participant ceases to be an Eligible Director by reason of the Participant’s retirement from the Board or disability (as defined in Section 6.6(f)), all of the Options and SARs granted to such Participant while serving as an Eligible Director shall be terminated except that any Options and SARs, to the extent then exercisable or exercisable within one year thereafter, may be exercised by the holder thereof within three years after such Participant ceases to be an Eligible Director, but not later than the termination date of the Award.
 
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(d)   If a Participant dies while serving as an Eligible Director, all Options and SARs granted to such Participant shall be terminated, except that any Options and SARs, to the extent exercisable by the holder thereof at the time of such death or exercisable within one year thereafter, may be exercised until the third anniversary of the date of such death, but not later than the termination date of the Award, by the holder thereof, the Participant’s estate, or the person designated in the Participant’s last will and testament, as appropriate.
 
(e)   If a Participant dies after ceasing to be an Eligible Director, all of the Options and SARs granted to such Participant shall be terminated, except that any Options and SARs, to the extent still outstanding and exercisable by the holder thereof at the time of such death, may be exercised until the third anniversary of the date the Participant ceased to be an Eligible Director, but not later than the termination date of the Award, by the holder thereof, the Participant’s estate, or the person designated in the Participant’s last will and testament, as appropriate.
 
(f)   For purposes of this Section 6.6, a “disability” shall occur if (a) a physical or mental illness renders the Participant incapable of satisfactorily discharging his or her duties and responsibilities as a Director for a period of 90 consecutive days, and (b) a duly qualified physician chosen by the Company and reasonably acceptable to the Participant or his or her legal representative certifies in writing that the Participant has become disabled.
 
6.7   A Stock Appreciation Right is a right to receive, without payment to the Company, for each share of Common Stock to which the SAR relates, an amount in cash equal to the excess, if any, of the Fair Market Value of a Share on the date of exercise of the SAR over the grant price. SARs will only be granted under the Plan in accordance with Section 5.3 hereof.
 
7.   Terms and Conditions of Restricted Stock Units.
 
7.1   Subject to the terms, conditions, and restrictions set forth herein, each RSU granted under Section 5.1 hereof represents the right to automatically receive from the Company, on the respective scheduled vesting date for such RSU, one share (a “Share”) of Common Stock, free of any restrictions and all cash, securities and property credited to or deposited in the Participant’s Dividend Equivalent Account (as defined in Section 7.4) with respect to such RSU.
 
7.2   Unless vesting is accelerated as provided in Section 7.6 or 12.1, the RSUs shall vest in one-quarter increments on the first, second, third and fourth anniversaries of the applicable Grant Date.  Upon vesting, a Participant shall be issued the Shares to which the Participant is entitled, unless the Participant has elected to defer receipt as permitted herein.
 
7.3   Except as provided in Section 7.4, an RSU shall not entitle the Participant to any incidents of ownership (including, without limitation, dividend and voting rights) (a) in any Share until the RSU shall vest and the Participant shall be issued a Share to which such RSU relates nor (b) in any cash, securities or property credited to or deposited in a Dividend Equivalent Account related to such RSU until such RSU vests.
 
7.4   From and after the Grant Date of an RSU until the issuance of the Share payable in respect of such RSU, the Participant shall be credited, as of the payment date therefor, with (a) the amount of any cash dividends and (b) the amount equal to the Fair Market Value of any
 
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Shares, securities, or other property distributed or distributable in respect of one share of Common Stock to which the Participant would have been entitled had the Participant been a record holder of one share of Common Stock at all times from the Grant Date to such issuance date (a “Property Distribution”).  All such credits shall be made notionally to a dividend equivalent account (a “Dividend Equivalent Account”) established for the Participant with respect to all RSUs granted with the same vesting date.  All credits to a Dividend Equivalent Account for the Participant shall be notionally increased by the Account Rate (as hereinafter defined), compounded quarterly, from and after the applicable date of credit until paid in accordance with the terms of the Plan and the applicable Award Notice.  The “Account Rate” shall be the prime commercial lending rate announced from time to time by JPMorgan Chase Bank or by another major national bank headquartered in New York, New York designated by the Committee.  The Committee may, in its discretion, deposit in the Participant’s Dividend Equivalent Account the securities or property comprising any Property Distribution in lieu of crediting such Dividend Equivalent Account with the Fair Market Value thereof.
 
7.5           No later than December 31 st of the year prior to the applicable Grant Date of any RSUs, a Participant may elect, in accordance with procedures established by the Committee, that all or a portion of the Shares issuable to the Participant upon the vesting of such RSUs and all or a portion of the amounts notionally credited in the Dividend Equivalent Account related to such RSUs shall not be distributed on the vesting date but shall be deferred and paid in one or more periodic installments not in excess of ten, beginning at such time or times elected by the Participant; provided, however, that the deferral period shall end no later than 10 years after the date that the Participant ceases to be an Eligible Director (“Termination”) for any reason.  In the event of any Termination, a distribution of all amounts due hereunder shall be made in full to the Participant or his or her designated beneficiary as soon as administratively possible following the date the Participant is scheduled to receive a distribution hereunder.  All securities or property comprising Property Distributions deposited in such Dividend Equivalent Account related to such RSUs shall, however, be distributed to the Participant as soon as practicable after the vesting date for such RSUs, irrespective of such deferral election.
 
7.6   (a)           Except as otherwise set forth in Section 7.6(b), all unvested RSUs, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited on the date the Participant ceases to be an Eligible Director, unless the Participant continues providing services to the Company pursuant to a consulting or other arrangement.
 
(b)   If a Participant ceases to be an Eligible Director by reason of the Participant’s death, retirement or disability (as defined in Section 7.6(d)), all unvested RSUs and all amounts credited to or property deposited in the Participant’s Dividend Equivalent Accounts with respect to such RSUs shall vest as of the date the Participant ceases to be an Eligible Director.
 
(c)   For purposes of this Section 7.6, if a Participant continues to provide services to the Company or a subsidiary of the Company pursuant to a consulting or other arrangement, the Participant will not “cease to be an Eligible Director” until such time as the Participant no longer provides such services.
 
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(d)   For purposes of this Section 7.6, a “disability” shall have occurred if the Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participant’s employer.
 
8.   Election to Have Annual Retainer Paid in Common Stock.
 
8.1   Each Eligible Director may make a stock purchase election on a form approved by the Committee (the “Stock Purchase Election Form”) directing that up to one hundred percent of his or her annual retainer, in twenty-five percent increments, be allocated to the purchase of Common Stock on his or her behalf.
 
8.2   A stock purchase election will be effective on the first date that the portion of the annual retainer subject to the election is paid that is at least five business days after the date the Stock Purchase Election Form is filed with the Company’s Human Resources Department in the manner required by the Company.  Stock purchase elections may be revoked or modified effective on the first date that the portion of the annual retainer is paid that is at least five business days following the date the revocation or modified election is filed with the Company in the manner required by the Company.
 
8.3   If an Eligible Director has timely submitted a satisfactory Stock Purchase Election Form, the Eligible Director shall be issued that number of whole shares of Common Stock, rounded down if necessary, equal to the amount of the Director's retainer to be allocated to the purchase of Common Stock on that date divided by the Fair Market Value of a share of Common Stock as of the trading date immediately preceding the issue date.
 
8.4   The shares of Common Stock authorized under this Section 8 shall be issued under the terms of this Plan, to the extent shares remain available for issuance, or another stock incentive plan maintained by the Company permitting such issuance.
 
9.   Deferral of Cash Compensation.
 
9.1   Each Eligible Director may elect to defer his or her Cash Compensation that is not used to purchase Common Stock pursuant to Section 8 hereof, in twenty-five percent increments, to a deferred compensation account (a “Deferred Compensation Account”) established for the Eligible Director’s benefit.  An election to defer Cash Compensation hereunder shall be made by means of a form approved by the Company (the “Deferral Election Form”) and shall be effective only with respect to Cash Compensation earned on or after January 1 st of the fiscal year following the receipt of the Deferral Election Form by the Company’s Human Resources Department.
 
9.2   An Eligible Director may revoke or modify an election made pursuant to Section 9.1 with respect to deferrals of Cash Compensation to be earned in the future and such revocation or modification shall take effect on the first day of the fiscal quarter that is more than
 
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twelve months after receipt of the written revocation or modification by the Committee and subject to such other rules as may be established by the Committee.
 
10.   Deferred Compensation Accounts.
 
10.1   A Deferred Compensation Account shall be established for each Eligible Director who executes a Deferral Election Form.
 
10.2   An Eligible Director’s Deferred Compensation Account shall be credited with that portion of the Eligible Director’s Cash Compensation that the Eligible Director has elected to defer to his or her Deferred Compensation Account pursuant to Section 9.1 as of the date such Compensation would otherwise have been paid to the Eligible Director.
 
10.3   All amounts in an Eligible Director’s Deferred Compensation Account shall accrue interest at a rate equal to the prime commercial lending rate announced from time to time by JPMorgan Chase (compounded quarterly) or by another major national bank headquartered in New York, New York and designated by the Committee.
 
10.4   Amounts credited to an Eligible Director's Deferred Compensation Account shall be distributed in either a single lump sum or annual installments (not to exceed ten), as designated by the Eligible Director in his or her applicable Deferral Election Form.  Distribution of a Deferred Compensation Account shall be made (in the case of a lump sum payment) or commence (in the case of installment payments) as follows:  (i) as soon as administratively possible following the date the Eligible Director ceases to be an Eligible Director, or (ii) on such other date as may be specified by the Eligible Director in his or her Deferral Election Form, provided such date is at least two years after the date the Deferral Election Form is received by the Committee.  Notwithstanding an Eligible Director’s election pursuant to his or her applicable Deferral Election Form, a distribution of all amounts remaining unpaid in the Deferred Compensation Account shall be made as soon as administratively possible after the tenth anniversary of the date the Eligible Director ceases to be an Eligible Director.  If an Eligible Director elects to have his or her Deferred Compensation Account distributed in installments, the amount of the first installment shall be a fraction of the value of the Eligible Director's Deferred Compensation Account, the numerator of which is one and denominator of which is the total number of installments elected, and the amount of each subsequent installment shall be a fraction of the value (including income credited pursuant to Section 10.3) on the date preceding each subsequent payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid.
 
10.5   In the event of the death of an Eligible Director prior to the distribution of his or her Deferred Compensation Account in full, the value of such Deferred Compensation Account shall be determined as of the date of death and such amount shall be distributed in a single lump sum payment to the Eligible Director's estate or designated beneficiary as soon as administratively feasible thereafter.
 
10.6   At least once per year, each Eligible Director who has executed a Deferral Election Form shall be provided with a statement of his or her Deferred Compensation Account.
 
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10.7   The right of any Eligible Director to receive distributions under the provisions of this Section 10 shall constitute an unsecured claim against the general assets of the Company.
 
11.   Adjustment Provisions.
 
In the event of any recapitalization, reclassification, stock dividend, stock split, combination of shares or other change in the Common Stock, all limitations on numbers of shares of Common Stock provided in this Plan, and the number of shares subject to outstanding Options, SARs, RSUs and stock purchase elections, shall be equitably adjusted in proportion to the change in outstanding shares of Common Stock.  In addition, in the event of any such change in the Common Stock, the Committee shall make any other adjustment that it determines to be equitable, including without limitation adjustments to the exercise price of any Option or base price of any SAR in order to provide Participants with the same relative rights before and after such adjustment.
 
12.   Change of Control.
 
12.1   Upon a Change of Control, or immediately prior to the closing of a transaction that will result in a Change of Control if consummated, all outstanding Options and SARs  granted pursuant to this Plan shall automatically become fully vested and exercisable.  If a Change of Control also qualified as a change in the ownership of the Company, a change in the effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company under Section 409A of the Code and any related implementing regulations or guidance, then all outstanding RSUs shall become fully vested.
 
12.2   No later than 30 days after a Change of Control, the Committee, acting in its sole discretion without the consent or approval of any Participant (and notwithstanding any removal or attempted removal of some or all of the members thereof as directors or Committee members), may act to effect one or more of the alternatives listed below, which may vary among individual Participants and which may vary among Options, SARs and RSUs held by any individual Participant:
 
(a)   require that all outstanding Options and SARs be exercised on or before a specified date (before or after such Change of Control) fixed by the Committee, after which specified date all unexercised Options and SARs and all rights of Participants thereunder shall terminate,
 
(b)   make such equitable adjustments to Awards then outstanding as the Committee deems appropriate to reflect such Change of Control (provided, however, that the Committee may determine in its sole discretion that no adjustment is necessary),
 
(c)   provide for mandatory conversion or exchange of some or all of the outstanding Options and SARs held by some or all Participants as of a date, before or after such Change of Control, specified by the Committee, in which event such Options and SARs shall be deemed automatically cancelled and the Company shall pay, or cause to be paid, to each such Participant an amount of cash per share equal to the excess, if any, of the Change of Control Value of the shares subject to such Option or SAR, as defined and calculated below, over the per share exercise price of such Options and SARs or, in lieu of such cash payment, the issuance of
 
12
 
Common Stock or securities of an acquiring entity having a Fair Market Value equal to such excess, or
 
(d)   provide that thereafter, upon any exercise of an Option that entitles the holder to receive Common Stock, the holder shall be entitled to purchase or receive under such Option, in lieu of the number of shares of Common Stock then covered by such Option, the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the holder would have been entitled pursuant to the terms of the agreement providing for the reorganization, share exchange, merger, consolidation or asset sale, if, immediately prior to such Change of Control, the holder had been the record owner of the number of shares of Common Stock then covered by such Option.
 
12.3   For the purposes of any conversions or exchanges under paragraph (c) of Section 12.2, the “Change of Control Value” shall equal the amount determined by whichever of the following items is applicable:
 
(a)   the per share price to be paid to holders of Common Stock in any such merger, consolidation or other reorganization,
 
(b)   the price per share offered to holders of Common Stock in any tender offer or exchange offer whereby a Change of Control takes place, or
 
(c)   in all other events, the Fair Market Value of a share of Common Stock, as determined by the Committee as of the date determined by the Committee to be the date of conversion or exchange.
 
12.4   In the event that the consideration offered to stockholders of the Company in any transaction described in this Section 12 consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered that is other than cash.
 
13.   General Provisions.
 
13.1   Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Eligible Director any right to continue as an Eligible Director   or affect the right of the Board to remove any Eligible Director.
 
13.2   No shares of Common Stock will be issued or transferred pursuant to an Award unless and until all then-applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed, have been fully met to the Company’s satisfaction.  As a condition precedent to the issuance of shares pursuant to an Award, the Company may require the Participant to take any reasonable action to meet such requirements.
 
13.3   No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock allocated or
 
13
 
reserved under the Plan or subject to any Award except as to such shares of Common Stock, if any, that have been issued or transferred to such Participant.
 
13.4   No Awards granted hereunder, including amounts notionally credited to the Participant’s Dividend Equivalent Account, and any Property Distributions deposited in such Dividend Equivalent Account, may be transferred, pledged, assigned or otherwise encumbered by a Participant except: (i) by will; (ii) by the laws of descent and distribution; (iii) pursuant to a domestic relations order, as defined in the Code, if permitted by the Committee and so provided in the Award Notice or an amendment thereto; or (iv) if permitted by the Committee and so provided in the Award Notice or an amendment thereto, Options may be transferred or assigned (w) to Immediate Family Members, (x) to a partnership in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the partners, (y) to a limited liability company in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the members, or (z) to a trust for the benefit of Immediate Family Members; provided, however, that no more than a de minimus beneficial interest in a partnership, limited liability company or trust described in (x), (y) or (z) above may be owned by a person who is not an Immediate Family Member or by an entity that is not beneficially owned solely by Immediate Family Members.  “Immediate Family Members” shall be defined as the spouse and natural or adopted children or grandchildren of the Participant and their spouses.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of Awards, or levy of attachment or similar process upon Awards not specifically permitted herein, shall be null and void and without effect.  The designation of a designated beneficiary shall not be a violation of this Section 13.4.
 
13.5   Each Award shall be evidenced by an Award Notice.
 
14.   Amendment, Discontinuance or Termination of the Plan.
 
14.1   The Board may amend or discontinue the Plan at any time; provided, however, that no such amendment may
 
(a)   without the approval of the stockholders, (i) increase, subject to adjustments permitted herein, the maximum number of shares of Common Stock that may be issued through the Plan, (ii) materially increase the benefits accruing to Participants under the Plan, (iii) materially expand the classes of persons eligible to participate in the Plan, (iv) expand the types of awards available under the Plan, (v) materially extend the term of the Plan, (vi) materially change the method for determining the exercise price of an Award, or (vii) amend Section 6.5 to permit a reduction in the exercise price of Options; or
 
(b)   materially impair, without the consent of the recipient, an Award previously granted.
 
14.2   Term of the Plan .  Subject to Section 14.1, the Plan shall continue until terminated by the Board, provided no Awards may be granted under the Plan later than May 6, 2014, which is ten years after the Effective Date of the Plan; provided, however, that Awards granted prior to
 
14
 
 such date shall remain in effect until all such Awards have either been satisfied, expired or canceled under the terms of the Plan.
 
15
 
 

ANNEX A to 2004 Director Compensation Plan

Special Awards to be Granted May 9, 2004

Gabrielle K. McDonald , Advisory Director, shall receive the following Options and SARs:

Number of
Options/SARs
Exercise
Price
Vesting Schedule
Termination
Date*
7,017 options
$20.2672
May 9, 2004
    May 1, 2005
10,000 options
$26.6875
May 9, 2004
August 1, 2005
10,000 options
$30.4375
May 9, 2004
August 1, 2006
10,000 options
$29.1563
May 9, 2004
August 1, 2007
10,000 options
$17.3125
May 9, 2004
August 1, 2009
5,000 options
$  9.0938
50% on May 9, 2004, and 50% on August 1, 2004
August 1, 2010
7,500 options
$11.165
33.3% on May 9, 2004, 33.3% on August 1, 2004, and on the next anniversary thereof
August 1, 2011
10,000 options
$15.195
25% on May 9, 2004, 25% on August 1, 2004, and on each of the next two anniversaries thereof
August 1, 2012
10,000 options
$26.975
25% on August 1, 2004, and on each of the next three anniversaries thereof
August 1, 2013
       
4,600 SARs
$20.2672
May 9, 2004
    May 2, 2005
6,556 SARs
$26.6875
May 9, 2004
August 1, 2005
6,556 SARs
$30.4375
May 9, 2004
August 1, 2006
6,556 SARs
$29.1563
May 9, 2004
August 1, 2007
6,556 SARs
$17.3125
May 9, 2004
August 1, 2009
3,278 SARs
$9.0938
50% on May 9, 2004, and 50% on August 1, 2004
August 1, 2010
4,917 SARs
$11.165
33.3% on May 9, 2004, 33.3% on August 1, 2004, and on the next anniversary thereof
August 1, 2011
6,556 SARs
$15.195
25% on May 9, 2004, 25% on August 1, 2004, and on each of the next two anniversaries thereof
August 1, 2012
6,556 SARs
$26.975
25% on August 1, 2004 and on each of the next three anniversaries thereof
August 1, 2013

J. Stapleton Roy , Advisory Director, shall receive the following Options and SARs:

Number of
Options/SARs
Exercise
Price
Vesting Schedule
Termination
Date*
5,000 options
$11.165
50% on August 1, 2004, and on the next anniversary thereof
August 1, 2011
7,500 options
$15.195
33.3% on August 1, 2004, and on each of the next two anniversaries thereof
August 1, 2012
10,000 options
$26.975
25% on August 1, 2004, and on each of the next three anniversaries thereof
August 1, 2013
       
3,278 SARs
$11.165
50% on August 1, 2004, and on the next anniversary thereof
August 1, 2011
4,917 SARs
$15.195
33.3% on August 1, 2004, and on each of the next two anniversaries thereof
August 1, 2012
6,556 SARs
$26.975
25% on August 1, 2004, and on each of the next three anniversaries thereof
August 1, 2013
_______________
*Unless terminated earlier pursuant to the terms of the Plan.

                                                   
 
16
 

 
Exhibit 15.1
 
 

 
 
To the Board of Directors and Stockholders of Freeport-McMoRan Copper & Gold Inc.:
 
 
We are aware of the incorporation by reference in the Registration Statements of Freeport-McMoRan Copper & Gold Inc. on Forms S-3 (File No. 333-104564) and Forms S-8 (File Nos. 33-63267, 33-63269, 33-63271, 333-85803, 333-105535, 333-115292, 333-136084, 333-141358 and 333-147413) of our report dated August 6, 2010 relating to the unaudited condensed consolidated interim financial statements of Freeport-McMoRan Copper & Gold Inc. that is included in its Form 10-Q for the quarter ended June 30, 2010.
 
 
/s/ Ernst & Young LLP
 
Phoenix, Arizona
August 6, 2010


Exhibit 31.1
Certification


I, Richard C. Adkerson, certify that:

1.  
I have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc.;

2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  August 6, 2010
 
   
 
By:           /s/ Richard C. Adkerson
 
Richard C. Adkerson
 
President and Chief Executive Officer
   


Exhibit 31.2
Certification

I, Kathleen L. Quirk, certify that:

1.  
I have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc.;

2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated:  August 6, 2010
 
   
 
By:           /s/ Kathleen L. Quirk
 
Kathleen L. Quirk
 
Executive Vice President,
 
Chief Financial Officer and Treasurer


Exhibit 32.1


Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


In connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc. (the “Company”) for the quarter ending June 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard C. Adkerson, as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 6, 2010
 
   
 
By:           /s/ Richard C. Adkerson
 
Richard C. Adkerson
 
President and Chief Executive Officer
   

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.




Exhibit 32.2


Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


In connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc.(the “Company”) for the quarter ending June 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kathleen L. Quirk, as Executive Vice President, Chief Financial Officer and Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 6, 2010
 
   
 
By:           /s/ Kathleen L. Quirk
 
Kathleen L. Quirk
 
Executive Vice President,
 
Chief Financial Officer and Treasurer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.