10-KPeriod: FY2006

FREEPORT-MCMORAN INC Annual Report, Year Ended Dec 31, 2006

Filed February 28, 2007For Securities:FCX

Summary

Freeport-McMoRan Inc. (FCX) filed its 2006 Form 10-K on February 27, 2007. The report details the company's significant operations, primarily centered around its majority-owned subsidiary, PT Freeport Indonesia, which operates one of the world's largest copper and gold mining operations in the Grasberg minerals district in Papua, Indonesia. A major development highlighted is the announced acquisition of Phelps Dodge Corporation for approximately $25.9 billion, expected to close in March 2007, which will create one of the largest publicly traded copper companies globally. The filing also underscores the company's substantial proven and probable copper and gold reserves, emphasizing the long-term nature of its resource base. Investors should note the significant concentration of FCX's operations in Indonesia, making it susceptible to political, economic, and social uncertainties in the region. The company also faces inherent risks associated with the mining industry, including operational challenges in remote and challenging terrain, commodity price volatility, and environmental management. However, FCX emphasizes its position as a low-cost producer and its commitment to social development programs in its operating areas.

Key Highlights

  • 1Announced acquisition of Phelps Dodge Corporation for approximately $25.9 billion in cash and stock, expected to close in March 2007, creating a leading global copper company.
  • 2Significant proven and probable reserves, with PT Freeport Indonesia holding 38.8 billion pounds of copper and 41.1 million ounces of gold.
  • 3Operations are heavily concentrated in Indonesia, leading to exposure to political, economic, and social risks in the region.
  • 4Adoption of EITF 04-6 accounting standard for stripping costs resulted in a lower reported net income for 2006 but no impact on cash flows.
  • 5The Grasberg open pit operations are projected to continue until mid-2015, with a transition to underground block cave mining thereafter.
  • 6The company's environmental policy includes ISO 14001 certification for its Indonesian and Spanish operations and ongoing management of tailings and acid rock drainage.
  • 7FCX paid substantial dividends in 2006, totaling $3.50 per share in supplemental dividends on top of regular quarterly dividends.

Frequently Asked Questions

The most significant upcoming event is the announced acquisition of Phelps Dodge Corporation for approximately $25.9 billion. The transaction was expected to close in March 2007, which would substantially increase the company's scale and market position in the copper industry.

The primary risks include political, economic, and social instability in Indonesia, where its main operations are located. Additionally, the company faces operational risks inherent in the mining industry, such as difficult terrain, natural disasters, commodity price volatility (copper and gold), and environmental challenges related to tailings and acid rock drainage.

The company manages its reserves through its majority-owned subsidiary, PT Freeport Indonesia, which operates under a Contract of Work with the Indonesian government. This contract governs mining rights and obligations. The company has significant proven and probable reserves, with mining plans extending through 2041, contingent on government approvals for contract extensions.

In 2006, FCX adopted EITF 04-6, which requires stripping costs incurred during production to be recognized in cost of sales in the period incurred, rather than deferred. This adoption resulted in a reduction of net income by $18.8 million for 2006 but had no impact on cash flows. This change affects the timing of expense recognition.