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Bakti Mining; and November 15, 2004, for Eastern Minerals. Recent Indonesian legislation permits open-pit mining in PT Freeport Indonesia’s Block B area, subject to certain require- ments. We are currently assessing these requirements and security issues. The timing for our resumption of explora- tion activities in our Contract of Work areas outside of Block A depends on the resolution of these matters. 

## SMELTING AND REFINING OPERATIONS 

Our investment in smelters serves an important role in our concentrate marketing strategy. PT Freeport Indonesia generally sells approximately one-half of its concentrate production to its affiliated smelters, Atlantic Copper and PT Smelting, and the remainder to other customers. Treatment charges for smelting and refining copper concentrates 

## Atlantic Copper Operating Results 

represent a cost to PT Freeport Indonesia and income to Atlantic Copper and PT Smelting. Through downstream integra- tion, we are assured placement of a significant portion of our concentrate production. While low smelting and refining charges in recent years adversely affected the operating results of Atlantic Copper, they benefited the operating results of PT Freeport Indonesia’s mining operations, effec- tively achieving a hedge for these charges. Treatment and refining charge rates are currently increasing. Higher future treatment and refining charges will benefit our smelter opera- tions and adversely affect our mining operations. Taking into account taxes and minority ownership interests, an equivalent change in smelting and refining charge rates would essentially offset in our consolidated operating results. 

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a. Includes a $9.8 million charge for Atlantic Copper’s workforce reduction plan. 

b. Includes costs related to Atlantic Copper’s 51-day major maintenance turnaround totaling $27.5 million. 

## Atlantic Copper Operating Results – 2004 Compared with 2003 

Atlantic Copper completed a 51-day scheduled major mainte- nance turnaround in May 2004, adversely affecting 2004 results. Atlantic Copper’s operating cash margin was a $24.4 million deficit in 2004, compared with a positive $22.4 million in 2003. The deficit in 2004 was primarily because of Atlantic Copper’s major maintenance turnaround. Major maintenance turnarounds of this duration typically occur approximately every nine years for Atlantic Copper, with significantly shorter-term maintenance turnarounds occurring in the interim. 

Atlantic Copper treated 768,100 metric tons of concentrate and scrap in 2004, compared with 964,400 metric tons in 2003. Cathode production totaled 454.7 million pounds and sales totaled 479.2 million pounds during 2004, compared with cathode production of 544.7 million pounds and sales of 546.8 million pounds during 2003. Atlantic Copper’s cathode 

cash production costs per pound of copper, before currency hedging, averaged $0.25 in 2004 and $0.16 in 2003. Unit costs for 2004 were adversely affected by lower production and higher costs from the maintenance turnaround. Treatment charges (including price participation), which are what PT Freeport Indonesia and third parties pay Atlantic Copper to smelt and refine concentrates, continued at historically low levels averaging $0.16 per pound for 2004 and 2003. Excess smelter capacity, combined with limited copper concentrate availability, caused long-term treatment and refining rates to decline since early 1998. However, treatment and refining rates increased in late 2004, and Atlantic Copper expects these higher rates to benefit its operations starting in 2005. 

Atlantic Copper reported operating losses of $83.5 million in 2004 and $21.8 million in 2003. The higher losses in 2004 

