PT Freeport Indonesia’s concentrate sales agreements, including its sales to Atlantic Copper and PT Smelting, provide for provisional billings based on world metals prices when shipped, primarily using then-current prices on the London Metal Exchange (LME). Final settlement on the copper portion is generally based on the average LME price for a specified future period, generally three months after the month of arrival at the customer’s facility. PT Freeport Indonesia’s concentrate sales agreements do not allow for net settlement and always result in physical delivery. Final delivery to customers in Asia generally takes up to 25 days and to customers in Europe generally takes up to 57 days. 

Under SFAS No. 133, PT Freeport Indonesia’s sales based on a provisional sales price contain an embedded derivative which is required to be bifurcated from the host contract. The host contract is the sale of the metals contained in the concentrates at the current spot LME price. PT Freeport Indonesia applies the normal purchase and sale exception allowed by SFAS No. 133 to the host contract in its concen- trate sales agreements because the sales always result in physical delivery. Revenues based on provisional sales prices totaled $391.5 million at December 31, 2004. The embedded derivative, which does not qualify for hedge accounting, is marked-to-market through earnings each period. At December 31, 2004, FCX had consolidated embedded copper deriva- tives on 292.2 million pounds recorded at an average price of $1.45 per pound based on forward prices for the expected settlement dates. All of these derivatives are expected to be finally priced during the first half of 2005. The impact of fluctuations in the forward prices used for these derivatives through the settlement date is reflected as derivative gains and losses in revenues. A two-cent movement in the average price used for these derivatives would have an approximate $3 million impact on FCX’s 2005 net income. Gold sales are priced according to individual contract terms, generally the average London Bullion Market Association price for a specified month near the month of shipment. At December 31, 2004, FCX had consolidated embedded gold derivatives on 123,400 ounces recorded at an average price of $438 per ounce. For 2004, 2003 and 2002, the maximum net price adjustment to revenues after initial recognition was seven percent for copper revenues and two percent for gold revenues. 

PT Freeport Indonesia pays royalties under a Contract of Work (see Note 10). The copper royalty rate payable by PT Freeport Indonesia under its Contract of Work varies from 1.5 percent of copper net revenue at a copper price of $0.90 or less per pound to 3.5 percent at a copper price of $1.10 or more per pound. The Contract of Work royalty rate for gold and silver sales is 1.0 percent. 

A large part of the mineral royalties under Government of Indonesia regulations is designated to the provinces from which the minerals are extracted. In connection with its fourth concentrator mill expansion completed in 1998, PT Freeport Indonesia agreed to pay the Government of Indonesia additional royalties (royalties not required by the Contract of Work) to provide further support to the local governments and the people of the Indonesian province of Papua. The additional royalties are paid on metal from production from PT Freeport Indonesia’s milling facilities above 200,000 metric tons of ore per day. The additional royalty for copper equals the Contract of Work royalty rate, and for gold and silver equals twice the Contract of Work royalty rates. Therefore, PT Freeport Indonesia’s royalty rate on copper net revenues from production above 200,000 metric tons of ore per day is double the Contract of Work royalty rate, and the royalty rates on gold and silver sales from production above 200,000 metric tons of ore per day are triple the Contract of Work royalty rates. The combined royalties, including the additional royalties, which became effective January 1, 1999, totaled $43.5 million in 2004, $26.5 million in 2003 and $24.5 million in 2002. 

Foreign Currencies.  Transaction gains and losses associated with Atlantic Copper’s euro-denominated and PT Freeport Indonesia’s rupiah-denominated monetary assets and liabilities are included in net income. Atlantic Copper’s euro-denominated net monetary liabilities totaled $74.0 million at December 31, 2004, based on an exchange rate of $1.36 per euro. Excluding hedging amounts, net Atlantic Copper foreign currency transaction losses totaled $1.6 million in 2004, $13.6 million in 2003 and $11.9 million in 2002. PT Freeport Indonesia’s rupiah-denominated net monetary liabilities totaled $7.7 million at December 31, 2004, based on an exchange rate of 9,270 rupiah to one U.S. dollar. Excluding hedging amounts, net PT Freeport Indonesia foreign currency transaction losses totaled $0.7 million in 2004, $3.0 million in 2003 and $3.5 million in 2002. 

Comprehensive Income.  FCX follows SFAS No. 130, “Reporting Comprehensive Income,” for the reporting and display of comprehensive income (net income plus other comprehensive income, or all other changes in net assets from nonowner sources) and its components. FCX’s comprehensive income for 2004, 2003 and 2002 follows (in thousands): 

