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FCX News Freeport-McMoRan Copper & Gold Inc. Reports Fourth-Quarter and Twelve-Month 2006 Results

NEW ORLEANS--(BUSINESS WIRE)--HIGHLIGHTS

• Fourth-quarter 2006 net income of $426 million, $1.99 per share, compared with net income of $463 million, $2.19 per share, for the fourth quarter of 2005. Net income of $1.4 billion, $6.63 per share, for 2006, compared with $935 million, $4.67 per share, for 2005.
• Fourth-quarter 2006 sales for PT Freeport Indonesia (PT-FI), FCX’s Indonesian mining unit, totaled 433 million pounds of copper and 508 thousand ounces of gold, compared with 468 million pounds of copper and 1.1 million ounces of gold in the fourth quarter of 2005.
• PT-FI’s share of 2006 sales totaled 1.2 billion pounds of copper and 1.7 million ounces of gold, compared with 1.5 billion pounds of copper and 2.8 million ounces of gold for 2005. PT-FI’s share of 2007 sales is projected to total 1.1 billion pounds of copper and 1.8 million ounces of gold.
• FCX’s operating cash flows approximated $798 million for the fourth quarter of 2006 and $1.9 billion for 2006. Capital expenditures totaled $73 million for the fourth quarter of 2006 and $251 million for 2006.
• Total cash as of December 31, 2006, was $907 million and debt totaled $680 million. Total debt was reduced by $576 million during 2006.
• Common stock dividends during the fourth quarter of 2006 totaled $357 million ($1.8125 per share), including a supplemental $295 million ($1.50 per share) dividend paid on December 29, 2006.
• During 2006, FCX completed financial transactions totaling $1.6 billion, including $576 million in debt reductions and $1.0 billion in cash to shareholders ($916 million, $4.75 per share, in common stock dividends and $100 million in common stock purchases).
• PT-FI’s share of estimated recoverable reserves as of December 31, 2006 totaled 38.7 billion pounds of copper and 41.1 million ounces of gold.
• Announced agreement to acquire Phelps Dodge for cash and stock in a $25.9 billion transaction, which would create the world’s largest publicly traded copper company. Transaction expected to close in March 2007.

Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) reported fourth-quarter 2006 net income applicable to common stock of $426.4 million, $1.99 per share, compared with net income of $463.2 million, $2.19 per share, for the fourth quarter of 2005. For the year ended December 31, 2006, FCX reported net income of $1.4 billion, $6.63 per share, compared with $934.6 million, $4.67 per share, for the year ended December 31, 2005.

Net income for 2006 included net losses of $73.9 million ($0.33 per share) on debt reductions and net gains of $29.7 million ($0.13 per share) at Atlantic Copper, FCX’s wholly owned Spanish smelting unit, from the disposition of land and certain royalty rights.

Net income for the fourth quarter of 2005 included net losses of $10.0 million ($0.05 per share) on debt reductions and a gain of $4.9 million ($0.02 per share) from the sale of land. Net income for 2005 included net losses of $42.9 million ($0.19 per share) on debt reductions.

James R. Moffett, Chairman of the Board, and Richard C. Adkerson, President and Chief Executive Officer, said, “We are pleased with the continuation of strong performance from the Grasberg minerals district, which together with strong copper and gold prices resulted in record financial results in 2006. We look forward to completing the Phelps Dodge transaction in the first quarter, which will allow our shareholders to benefit from the combined company’s portfolio of diverse operations, growth projects and long-lived reserves. We are positive about the outlook for our industry and the opportunities available from the combined company’s assets.”

PT-FI PRODUCTION AND SALES

PT-FI’s share of fourth-quarter 2006 sales totaled 432.5 million pounds of copper and 507.5 thousand ounces of gold, exceeding previous estimates reported in October 2006 of 415 million pounds of copper and 470 thousand ounces of gold.

In the fourth quarter of 2006, copper ore grades averaged 1.08 percent and recovery rates averaged 89.5 percent, compared with 1.31 percent and 91.1 percent for the fourth quarter of 2005. Gold ore grades averaged 0.95 grams per metric ton (g/t) and recovery rates averaged 84.2 percent in the fourth quarter of 2006, compared with 2.33 g/t and 84.0 percent for the fourth quarter of 2005. Average ore grades improved during the fourth quarter of 2006, compared to the first nine months of 2006. Copper and gold ore grades are projected to be higher in the first half of 2007 than in the second half because of mine sequencing, with approximately 63 percent of copper and approximately 81 percent of gold expected to be sold in the first half of the year. First-quarter 2007 sales are estimated to be the highest of the year, approximating 400 million pounds of copper and 850,000 ounces of gold.

Mill throughput, which varies depending on ore types being processed, averaged 246,500 metric tons of ore per day in the fourth quarter of 2006, compared with 236,900 metric tons of ore in the fourth quarter of 2005.

Production from PT-FI’s Deep Ore Zone (DOZ) underground mine averaged 42,600 metric tons of ore per day in the fourth quarter of 2006, representing 17 percent of mill throughput. DOZ continues to perform above design capacity of 35,000 metric tons of ore per day. PT-FI is expanding the capacity of the DOZ underground operation to a sustained rate of 50,000 metric tons per day with the installation of a second crusher and additional ventilation, expected to be completed in mid-2007. PT-FI anticipates a further expansion of the DOZ mine to 80,000 metric tons per day. The DOZ mine is one of the world’s largest underground mines.

Realized copper prices improved by 43 percent to an average of $2.88 per pound in the fourth quarter of 2006 from $2.02 per pound in the fourth quarter of 2005. The spot copper price on the London Metal Exchange closed at $2.55 per pound on January 15, 2007. Realized gold prices improved by 27 percent to an average of $627.71 per ounce in the fourth quarter of 2006 from $494.01 per ounce in the fourth quarter of 2005. The London P.M. gold fixing price closed at $627.00 per ounce on January 15, 2007.

FCX’s concentrate sales for the fourth quarter of 2006 included 346.4 million pounds of copper, priced at an average of $2.87 per pound, subject to final pricing over the next several months. Each $0.05 change in the price realized from the December 31 price would result in an approximate $9 million effect on FCX’s 2007 net income. Fourth-quarter 2006 adjustments to concentrate sales recognized in prior quarters decreased revenues by $70.8 million ($37.6 million to net income or $0.17 per share) compared with an increase of $59.3 million ($31.4 million to net income or $0.14 per share) in the fourth quarter of 2005.

PT-FI’s share of annual sales in 2007 is currently projected to approximate 1.1 billion pounds of copper and 1.8 million ounces of gold. Annual sales over the five-year period from 2007 to 2011 are expected to average approximately 1.2 billion pounds of copper and 1.8 million ounces of gold. 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. The achievement of PT-FI’s sales estimates will be dependent, among other factors, on the achievement of targeted mining rates, the successful operation of PT-FI production facilities, the impact of weather conditions at the end of fiscal periods on concentrate loading activities and other factors.

PT-FI’s mine plans are based on latest available data and studies, which take into account factors such as mining and milling rates, ore grades and recoveries, economic conditions and geological/geotechnical considerations. PT-FI updates these plans to incorporate new data and conditions, with the objective of operating safely, managing risks and maximizing economic values.

PT-FI recently completed an analysis of its longer-range mine plans to assess the optimal design of the Grasberg open pit and the timing of development of the Grasberg underground block cave ore body. The analysis incorporated the latest geological and geotechnical studies, costs and other economic factors in developing the optimal timing for transitioning from the open pit to underground. The revised long-range plan includes changes to the expected final Grasberg open-pit design which will result in a section of high grade ore previously expected to be mined in the open pit to be mined in the Grasberg underground block cave mine. Approximately 100 million metric tons of high grade ore in the southwest corner (located in the "8 South" pushback) of the open pit, with aggregate recoverable metal approximating 4 billion pounds of copper and 5 million ounces of gold, is expected to be mined through PT-FI's large scale block caving operations rather than from open-pit mining. The revised mine plan reflects a transition from the Grasberg open pit to the Grasberg underground block cave ore body in mid-2015.

The mine plan revisions alter the timing of metal production in the period of 2015 and beyond but do not have a significant effect on ultimate recoverable reserves. The success of PT-FI's underground operations and the significant progress to establish underground infrastructure provides confidence in developing the high-grade, large-scale underground ore bodies in the Grasberg minerals district. PT-FI will continue to assess opportunities to optimize the long-range mine plans and net present values of the Grasberg minerals district.

PT-FI’s unit net cash costs, including gold and silver credits, averaged $0.44 per pound of copper during the fourth quarter of 2006, compared with a credit of $0.20 per pound in the 2005 quarter. The higher unit net cash costs in the 2006 quarter compared with the 2005 quarter primarily reflect lower copper and gold volumes, and the factors resulting in an increase in the 2006 annual period include higher unit production costs (resulting from lower volumes, higher input costs and the impact of changes in accounting for stripping costs) and higher treatment charges and royalties attributable to increased copper prices. Unit site production and delivery costs will vary with fluctuations in production volumes because of the primarily fixed nature of PT-FI’s cost structure.

On January 1, 2006, FCX adopted Emerging Issues Task Force Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry” (EITF 04-6), which requires that stripping costs be included in costs of sales as incurred beginning in 2006. Upon adoption of EITF 04-6, FCX eliminated its deferred mining cost asset ($285.4 million) at December 31, 2005, net of taxes, minority interest share and inventory effects ($135.9 million), as a cumulative effect adjustment which reduced its retained earnings on January 1, 2006. Unit site production and delivery costs include the amortization of previously deferred mining costs of $0.01 per pound ($3.7 million) in the fourth quarter of 2005 and are net of deferred mining costs of $0.05 per pound ($64.9 million) in the 2005 twelve-month period.

Assuming 2007 average copper prices of $2.50 per pound and average gold prices of $600 per ounce and achievement of current 2007 sales estimates, PT-FI estimates that its annual 2007 unit net cash costs, including gold and silver credits, would approximate $0.63 per pound. Estimated unit net cash costs for 2007 are projected to be slightly higher than the 2006 average, primarily because of lower 2007 copper sales volumes partially offset by lower treatment charges and higher gold credits. Because the majority of PT-FI’s costs are fixed, unit costs vary with the volumes sold and will therefore be lower during the first half of 2007 and higher during the second half compared to the projected annual average. Unit net cash costs for 2007 would change by approximately $0.04 per pound for each $25 per ounce change in the average price of gold.

SMELTER OPERATIONS

FCX’s investment in smelters serves an important role in its concentrate marketing strategy. Through downstream integration, FCX assures placement of a significant portion of its concentrate production. Taking into account taxes and minority interests, an equivalent change in PT-FI and Atlantic Copper treatment charges essentially offset in FCX's operating results. Treatment charges consist of a base rate and, in certain contracts, price participation based on copper prices. Essentially all of PT-FI's concentrate is sold under long-term contracts.

Atlantic Copper treated 229,600 metric tons of concentrate and scrap in the fourth quarter of 2006, compared with 259,100 metric tons in the year-ago period. Atlantic Copper produced 133.4 million pounds of cathodes and sold 136.3 million pounds of cathodes during the fourth quarter of 2006, compared with cathode production of 137.6 million pounds and sales of 136.7 million pounds during the fourth quarter of 2005. Treatment charges received by Atlantic Copper averaged $0.37 per pound during the fourth quarter of 2006 and $0.27 per pound during the fourth quarter of 2005. The increase in treatment charges in the 2006 period reflects higher market rates and price participation under the terms of Atlantic Copper’s concentrate purchase and sales agreements. Cathode cash unit costs averaged $0.21 per pound in the fourth quarter of 2006 and $0.17 per pound in the fourth quarter of 2005 (see attached presentation, “Cathode Cash Unit Costs”). Higher unit costs in the 2006 period primarily reflect the impact of lower anode volumes and exchange rate movements.

Atlantic Copper’s operating income of $19.1 million for the fourth quarter of 2006 approximated operating income for the 2005 period. For the year 2006, Atlantic Copper generated $74.5 million in operating income, compared with $34.8 million in 2005. The positive results in 2006 primarily reflect higher treatment charges, partly offset by lower volumes. Each $0.01 change in treatment charge rates equates to approximately $6 million of Atlantic Copper annual operating income. Atlantic Copper is planning a 23-day maintenance turnaround beginning in the second quarter of 2007, which is expected to adversely affect costs and volumes resulting in an approximate $25 million impact on 2007 operating results.

PT Smelting, PT-FI’s 25 percent-owned Indonesian smelting unit, treated 100,700 metric tons of concentrates in the fourth quarter of 2006, compared with 228,800 metric tons in the year-ago period. In October 2006, PT Smelting temporarily suspended smelter operations following an equipment failure at the oxygen plant supplying the smelter. PT Smelting resumed operations in mid-December 2006. During 2006, PT Smelting completed an expansion of its production capacity from 250,000 metric tons of copper metal per year to 275,000 metric tons of copper metal per year. PT Smelting produced 82.3 million pounds of cathodes for the fourth quarter of 2006, compared with cathode production of 145.4 million pounds during the fourth quarter of 2005. PT Smelting’s cathode cash unit cost per pound totaled $0.23 per pound in the fourth quarter of 2006 and $0.17 per pound in the year-ago period (see attached presentation, “Cathode Cash Unit Costs”), primarily reflecting the impact of lower volumes in 2006. PT-FI’s equity interest in PT Smelting’s losses totaled $0.6 million, $0.5 million to net income or less than $0.01 per share, in the fourth quarter of 2006, compared to earnings of $2.8 million, $2.3 million to net income or $0.01 per share, in the 2005 quarter. For the year 2006, PT-FI’s equity interest in PT Smelting’s earnings totaled $6.5 million, $5.3 million to net income or $0.02 per share, and $9.3 million, $7.6 million to net income or $0.03 per share in 2005.

FCX defers recognition of profits on PT-FI’s sales to Atlantic Copper and on 25 percent of PT-FI’s sales to PT Smelting until the final sales to third parties occur. Changes in these net deferrals resulted in additions to FCX’s net income totaling $4.1 million, $0.02 per share, in the fourth quarter of 2006 and $17.1 million, $0.08 per share, for the year 2006. FCX’s net income for 2005 was reduced by $67.8 million, $0.31 per share, for changes in intercompany profits, in the fourth quarter and $77.8 million, $0.35 per share, for the year. At December 31, 2006, FCX’s net deferred profits on PT-FI concentrate inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income after taxes and minority interests sharing totaled $100.8 million. Based on copper prices of $2.50 per pound and gold prices of $600 per ounce for 2007 and current shipping schedules, FCX estimates that the net change in deferred profits on intercompany sales will result in a decrease to net income of approximately $60 million in the first quarter of 2007. The actual change in deferred intercompany profits may differ substantially from this estimate because of changes in the timing of shipments to affiliated smelters and metal prices.

During 2006, PT-FI added 41.8 million metric tons of ore averaging 0.67 percent copper and 0.70 g/t gold associated with positive drilling results at the Mill Level Zone and Deep Mill Level Zone deposits, a 387-million-metric-ton complex with average grades of 1.02 percent copper and 0.81 g/t gold. PT-FI’s reserve estimates also reflect revisions resulting from changes to its long-range mine plans. Year-end 2006 aggregate proven and probable recoverable reserves, net of 2006 production, were 2.8 billion metric tons of ore averaging 1.04 percent copper, 0.90 g/t gold and 4.16 g/t silver. Estimated recoverable reserves were assessed using a copper price of $1.00 per pound and a gold price of $400 per ounce.

Pursuant to joint venture arrangements between PT-FI and Rio Tinto, Rio Tinto has a 40 percent interest in production from reserves above those reported at December 31, 1994. Net of Rio Tinto’s share, PT-FI’s share of proven and probable recoverable reserves as of December 31, 2006, was 38.7 billion pounds of copper, 41.1 million ounces of gold and 128.0 million ounces of silver. FCX has a 90.6 percent equity interest in PT-FI’s share of proven and probable reserves.

PT-FI’s exploration efforts in 2007 will continue to test extensions of the Deep Grasberg and Kucing Liar mine complex. Engineering studies are under way to incorporate positive drilling results from 2006 activities at Deep Grasberg and Kucing Liar. PT-FI also expects to test the o