Global Reporting Initiatives

    Global Reporting Initiative
 

Reporting Period: January 1, 2006-December 31, 2006

In January of 2005, 16 leading mining and metals companies comprising the International Council on Mining and Metals (ICMM) agreed to report on their sustainable development performance using the GRI Sustainability Reporting Framework, including the Mining and Metals Sector Supplement.

The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines.

The International Council on Mining and Metals (ICMM) is a CEO-led organization dedicated to sustainable development and to the vision of a viable mining, minerals and metals industry widely recognized as essential for modern living and a key contributor to sustainable development.

FCX’s
report is based on GRI requirements.

Freeport-McMoRan Copper & Gold Inc. (FCX) is a company incorporated in the state of Delaware, U.S.A. where its common stock, preferred stock and senior notes are publicly traded on the New York Stock Exchange. Our common stock symbol is FCX. Our Indonesian mining affiliate, PT Freeport Indonesia (PT-FI), is a major producer of copper from mineral ore containing significant amounts of gold. The world requires the copper we produce to sustain and expand economies and for infrastructure development. The copper concentrate from our mining complex in Papua, Indonesia, and the copper products from our wholly owned Atlantic Copper, S.A. smelter in Spain and our 25-percent-owned smelter in Indonesia, PT Smelting, are essential for the communications, transportation, electronics and other industries on which the world relies.

Note: FCX, as a founding member of ICMM, is committed to superior business practices in sustainable development. We have committed to implement the ICMM Sustainable Development Framework and comply with policy statements of the ICMM Council; details are given in our Working Toward Sustainable Development report. The ICMM Sustainable Development Framework comprises four elements: a set of 10 Principles, supported by public reporting in accordance with Global Reporting Initiative (GRI) guidelines, independent assurance, and a commitment to sharing good practice. FCX is fully committed to the Global Reporting Initiative (GRI).

The left-hand column of the report indicates which of the 10 ICMM Principles corresponds to each item within the GRI report.

On November 19, 2006, Freeport-McMoRan Copper & Gold Inc. (FCX) and Phelps Dodge Corporation announced that they had signed a definitive merger agreement whereby FCX would acquire Phelps Dodge for approximately $25.9 billion in cash and stock. The shareholders of both companies approved the transaction on March 14, 2007, and the transaction was completed on March 19, 2007. The information contained in this report, which covers the reporting period of January 1, 2006, through December 31, 2006, does not reflect the impact of this transaction.
 

Independent Verification Statement

  Verification Statement
Matrix+ Consulting UK Limited was commissioned by Freeport-McMoRan Copper & Gold Inc. (FCX) to verify claims made in Sections 1 to 3 as well as quantitative information for selected indicators included in the GRI Indicators Table in section 4 of the company’s Global Reporting Initiative 2006 report to be posted on the FCX web site.
  Scope
Regarding Sections 1-3, the scope of work comprised a review of statements made in respect of policies and processes that are being used to manage FCX’s sustainable development agenda.

With respect to section 4, the scope of work comprised a desk top and site assessment of 29 core indicators and 4 additional indicators of the GRI 2002 Sustainability Reporting Guidelines and Mining and Metals Supplement, including: Economic (14), Environment (12), Labour Practices and Decent Work (6), and Human Rights (1).

For some economic Indicators, FCX aggregate data was verified by Matrix+ Consulting UK. For all other indicators, only data pertaining to PT Freeport Indonesia (PTFI) was verified at site level by Matrix+ Consulting UK (see Table 1 below). An independent review of Atlantic Copper S.A. was not undertaken by Matrix+ Consulting, as this operation was subject to a separate verification process.
 

Table I - GRI Indicators Verified by Matrix+ Consulting

Indicator Category FCX PTFI
Economic EC1; EC2; EC3; EC6; EC7; EC 8; EC11; MM2 EC4; EC5; EC10; EC12; EC13; MM1
Environmental   EN1; EN3; EN5; EN6; EN8-13; EN16; MM4
Labour practices   LA1-3; LA7; LA9; MM13
Human Rights   HR14
 
  Methodology
Regarding Sections 1-3, a desktop assessment was carried out to evaluate the extent to which company statements could be upheld in the context of FCX’s operational and governance activities. This included a review of key documents requested by Matrix+ Consulting UK and provided by FCX, some of which had to be translated from Indonesian or Spanish into English. No site based assessments were carried out.

Regarding Section 4, a desktop assessment was carried out to evaluate the risk of incompleteness and inaccuracy, based on the mode of collecting information relating to each GRI Indicator in Table 1 above, using the AS/NZS 4360:2004 Risk Management standard.

A 3-day site assessment was then carried out at PTFI by a senior auditor. Auditing priority was applied to the parameters with a higher risk ranking, and supplemented by sampling of parameters with a lower risk ranking. Calculations and spreadsheets were viewed and interrogated to obtain an understanding of the consistency of the reporting processes and to test the accuracy of the aggregation processes for high priority indicators. Interviews were held with various representatives of FCX and PTFI.
  Limitations of the Verification
This verification has been carried out by checking samples of information and documents that have been made available during the period of verification activity by FCX and PTFI. Information provided that has been deemed to be independently verified by other third parties has been considered to be appropriately verified, and was not subjected to re-auditing by Matrix+ Consulting. Accordingly, Matrix+ Consulting has not checked or reviewed all of FCX’s and PTFI’s information and documents and related data collection and management systems.

This verification applies to selected information reported in Sections 1 to 3 inclusive as well as quantitative information reported on selected indicators in the GRI Indicators Table in section 4 of FCX’s
Global Reporting Initiative 2006 report and posted on the company’s website. It does not extend to any updates that may be posted after this date. The verification statement provided by Matrix+ Consulting is not intended to be used as advice or as the basis for any decisions, including, without limitation, financial or investment decisions.
 
  Key Findings
Based on our review:
•  We are not aware of any misstatements made in respect of the information provided by FCX in Sections 1-3. We have no cause to believe that claims placed on the website cannot be supported.
 
•  We have no cause to believe that GRI Indicator data verified by Matrix+ Consulting UK has not been properly collated from information reported at an operational level or transcribed from independent studies of the economic impacts of PTFI.
The audit identified a number of areas in PTFI's reporting process that could be enhanced and underpin the transparent, accurate and complete reporting of performance.
•  The transparency associated with Indicator EC13, Indirect Economic Impacts, could be improved. This Indicator has been reported using authoritative information from an independent analysis of the economic impacts of the PT Freeport Indonesia operation and represents diligent application of available data. A review of the methodology and data bases used to undertake this analysis could be undertaken to support the magnitude of the Indirect Impact claim.
 
•  The size and scope of PTFI has resulted in several decentralized processes of data capture and analysis for the various Indicators, particularly environmental Indicators. Greater control on the accuracy and completeness of data could be achieved by consolidating various processes on site to form a more streamlined approach to data capture. It was noted that some consolidation processes were already being instituted in 2007.
 
•  A systematic, continuous and retrospective process for internal testing of data has not been implemented uniformly across the site for all parameters reported. A systematic process for identifying material inconsistencies would benefit the reporting activity, reduce the risk of collecting and collating erroneous data, and promote early management intervention on negative trends.
 
• Clearer on-site definitions of Indicators pursued for reporting, Standard Operating Procedures for capturing relevant information and additional training of personnel charged with capturing this information would further improve the reporting process.
 
• Further detailed findings for each Indicator examined by Matrix+ Consulting are presented in a Management Report to FCX.
  Statement of Independence
The independence of our team has been reviewed and none of the Matrix+ Consulting assessors involved in this project presents a conflict of interest to the integrity of this verification statement.

Matrix+ International Matrix+ International Brisbane – Johannesburg – London logo final hor 20030805

December 2007

Verification Statement   (pdf version)

ICMM
Principle

Description of Indicator

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1. Sustainable Development Vision and Strategy

On March 19, 2007, Freeport-McMoRan Copper & Gold Inc. completed its acquisition of Phelps Dodge Corporation, creating the world’s largest publicly traded copper company. The new Freeport-McMoRan Copper & Gold Inc. is an international mining industry leader with its corporate headquarters in North America with large, long-lived, geographically diverse assets and significant proven and probable reserves of copper, gold, and molybdenum. The world requires the metals we produce to sustain and expand economies and to build infrastructure in developing nations.

While this is a dramatic change within our Company, it neither alters our commitments nor our longstanding, mutually beneficial partnerships with our stakeholders in Indonesia and Spain. Through our Indonesian mining affiliate, PT Freeport Indonesia, we have long been a major producer of copper from mineral ore containing significant amounts of gold. Additionally, we continue to produce copper products from our wholly owned Atlantic Copper, S.A. smelter in Spain and our 25-percent-owned Gresik smelter in Indonesia, which are essential for the construction, communications, transportation, electronics, energy transmission and other industries on which the world relies. Because the acquisition of Phelps Dodge was not completed until March 19, 2007, this report focuses on the activities of Freeport-McMoRan Copper & Gold Inc., its affiliates and subsidiaries during 2006.

This report reviews our sustainable development programs, which are based on our underlying commitments that help build the foundation for vibrant communities. We recognize that the economic need for our products must be balanced with social and environmental considerations so that, in meeting the demands of the present generation, we do not compromise the ability of future generations to meet their own needs. This is the core concept of sustainable development. We embrace this responsibility both as one of our principal duties as a corporate citizen and as a sound and prudent business practice. Working toward sustainable development in our business operations and programs helps ensure healthy environments for our workforce and the communities in our areas of operation, which are vital to our on-going success.

We have an Environmental Policy and a Social, Employment, and Human Rights Policy which guide us on the path toward sustainable development. We recognize the significant challenges we must overcome to stay on that path and are cognizant that our mining operations have impacts on the surrounding environment and neighboring communities. Our responsibility and commitment is to minimize and mitigate environmental impacts and to maximize the beneficial economic and social results of our operations. This is not a static commitment expressed through rigid programs. We are committed to continuous improvement in our sustainable development performance. Accordingly, we assess our environmental management and social development programs annually in a constant search for better ways of achieving our sustainable development goals. In this regard, we do not rely solely on our own judgment, having learned from experience the value of looking at our programs through independent audits. During 2006, the International Center for Corporate Accountability team visited our operations site in Indonesia for a follow-up to its 2004 independent audit of our social and human rights programs. In addition, the International Certification Services Division of Société Générale de Surveillance (SGS), an International Standardization Organization (ISO) 14001 registration and certification organization based in Geneva, Switzerland, with offices in Indonesia, performed a surveillance audit on PT Freeport Indonesia’s environmental management system. PT Freeport Indonesia also participated in the environmental management performance assessments organized by the Indonesian Ministry of Environment. These outside audits provide us with invaluable insights and recommendations are now being implemented to improve our sustainable development performance.

In Papua, Indonesia, we are mining the world’s largest reserve of copper and gold and our planning horizons extend decades into the future. We do not make these plans alone. Our operations, projects, and programs are carried out in partnership with the Government of Indonesia, the Province of Papua, Mimika Regency, and neighboring communities — all of whom have a stake in seeing that our contributions result in a sustainable future that benefits all. We maintain a regular dialogue with our stakeholders.  Our commitment to sustainable development is significant. We invested over $100 million in sustainable development programs during 2006 in Papua, including $27 million on environmental management and $77 million on social development. But monetary amounts fail to convey the significance of our environmental programs or the beneficial impacts of our educational, healthcare, social, and economic development programs on neighboring communities in Papua. This report documents these efforts.

 

James R. Moffett

Chairman of the Board

Richard C. Adkerson

Chief Executive Officer

 

10 2 Profile for 2006
 
10 2.1

Name of Reporting Organization: Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX).
 

10 2.2 Major products and/or services: FCX explores for, develops, mines, and processes ore containing copper, gold, and silver in Indonesia, and smelts and refines copper concentrates in Spain and Indonesia.
 
10 2.3 Operational structure of the organization: The FCX Corporate Headquarters is based in New Orleans, Louisiana. Each major operating subsidiary has an on-site management team (Link to page 20 of 2006 Annual Report).
 
10 2.4 Operational structure of the organization: FCX conducts its operations through its subsidiaries, PT Freeport Indonesia (PT-FI), PT Puncakjaya Power, PT Irja Eastern Minerals, and Atlantic Copper, S.A. PT-FI’s operations in the Indonesian province of Papua include exploration and development, mining and milling of ore containing copper, gold, and silver, and the worldwide marketing of concentrates containing those minerals. PT Puncakjaya Power supplies power to PT-FI’s operations. PT Irja Eastern Minerals conducts mineral exploration activities in Papua. Atlantic Copper, FCX’s wholly owned subsidiary in Huelva, Spain, and PT Smelting, PT-FI’s 25-percent-owned smelter facility in the Indonesian province of East Java, are engaged in the smelting and refining of copper concentrates.

 

In 1996, we established joint ventures with Rio Tinto, an international mining company with headquarters in London, England (See Section 2.9, below).
 

10 2.5 Countries in which the organization’s operations are located: FCX operated in 2006 in the United States, Indonesia, and Spain.
 
10 2.6

Nature of ownership; legal form: FCX is a publicly traded company that owns directly and indirectly:
 

2.6.1   90.64% of the outstanding stock of PT-FI; and
 

2.6.2   100% of the outstanding stock of PT Indocopper Investama
 

2.6.3   100% of the outstanding stock of Atlantic Copper, S.A.
 

2.6.4    25% of the outstanding stock of PT Smelting.
 

10 2.7 Nature of markets served: Smelters and refineries worldwide.
 
10 2.8

Scale of the reporting organization:
 

2.8.1   Number of employees: As of December 31, 2006:  PT-FI (Indonesia) had nearly 9,000 employees, and 10,720 contract workers. Atlantic Copper (Spain) had 550 employees. FCX and FM Services had 9 and 145 employees respectively in the US.
 

2.8.1   Products produced/services offered (quantity or volume): In 2006, PT-FI (net of Rio Tinto’s interest) produced 1.2 billion pounds of recoverable copper, 1.7 million ounces of recoverable gold, and 3.8 million ounces of recoverable silver. Atlantic Copper produced 27,152 metric tons of anodes and 235,386 metric tons of cathodes (Link to page 22 of 2006 Annual Report, Operating Data).
 

2.8.2   Net sales: FCX revenues for 2006 were $5.791 billion (Link to page 22 of 2006 Annual Report, Revenues).
 

2.8.3   Total capitalization broken down in terms of debt and equity: Debt as of December 31, 2006, was $680 million; equity as of December 31, 2006, was $2.445 billion (Link to page 57 of 2006 Annual Report).
 

2.8.4   Value added: In 2006, Value Added was approximately $3.5 billion, approximately 90% in Indonesia. Link to page 80 of 2006 Annual Report. Total Assets: FCX assets as of December 31, 2006, were $5.39 billion (Link to page 57 of 2006 Annual Report).
 

2.8.5   Sales/Revenues by countries: FCX revenues attributable to various countries based on the location of the customer were: Spain $1.38 billion, Japan $1.24 billion, Indonesia $1.2 billion, India $388 million, Korea $377 million, Belgium $215 million, Switzerland $177 million, and others $810 million (Link to page 81 of 2006 Annual Report).
 

Costs by country/region: FCX Site Production and Delivery costs in 2006 were $1.28 billion  in Indonesia and $2.12 billion  in Spain before consolidated eliminations. After these eliminations FCX total costs were $2.525 billion (Link to page 80 of 2006 Annual Report). 2.8.9 Employees by country/regions: As of December 31, 2006:  PT-FI (Indonesia) had nearly 9,000 employees, and 10,720 contract workers. Atlantic Copper (Spain) had 550 employees. FCX and FM Services had 9 and 145 employees respectively in the US.
 

List of stakeholders, key attributes of each, and relationship to the reporting organization:
 

2.9.1   Shareholders and providers of capital – As of December 31, 2006, we had 197 million shares of FCX Class B Common Stock outstanding. Three organizations owned 5% or more of FCX Common Stock as of December 31, 2006: Barclays Global Investors, N.A., Capital Research and Management Company, and Wellington Management Company, LLP (Link to page 14 of 2006 Proxy).
 

During 2006, FCX engaged in a number of financing activities (Link to page 40 of 2006 Annual Report). In July 2006, FCX entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. as Administrative Agent, Issuing Bank, Security Agent, JAA Security Agent and Syndication Agent; Citibank, N.A., Merrill Lynch Pierce, Fenner & Smith Incorporated and The Bank of Nova Scotia, as Co-Documentation Agents, U.S. Bank National Association, as FI Trustee, J.P. Morgan Securities Inc., as Sole Lead Arranger and Sole Bookrunner (Link to Exhibit 10.1 to the Current Report on Form 8-K of FCX dated July 25, 2006).

Trustees for various issues in 2006 were The Chase Manhattan Bank, The Bank of New York, ChaseMellon Shareholder Services, L.L.C., and Mellon Investor Services,
 

2.9.2   Joint Venture Partner – In 1996, we established joint ventures with Rio Tinto, an international mining company with headquarters in London, England. One joint venture covers PT-FI’s mining operations in Block A and gives Rio Tinto, through 2021, a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver in Block A and, after 2021, a 40 percent interest in all production from Block A (Link to page 66 of 2006 Annual Report)
 

2.9.3   Communities – FCX and PT-FI are committed to building and maintaining positive relationships with our Papuan neighbors, in particular the indigenous communities closest to our area of operation. Several recent initiatives have focused on improving relationships with the local communities, including a Memorandum of Understanding (MOU) with the two primary indigenous landowning tribes; MOU’s between PT-FI, LPMAK (the Amungme and Kamoro Community Development Organization), and local government Departments of Education and Health to improve facilities and quality of services in these two areas  in the Mimika area; and agreements with three major local foundations to address gender and human rights issues.
 

2.9.4   Suppliers – FCX, primarily through its PT-FI and Atlantic Copper affiliates, does business with over 2,000 suppliers.  These suppliers are broken down by country as follows: Australia 33%; Singapore 32%; United States 15%; Indonesia 13%; Other 7%.


2.9.5   Trade unions
– Through its operating subsidiaries, PT-FI and Atlantic Copper, FCX strives to maintain harmonious working relationships with its workers. PT-FI workers are represented by a government-sanctioned union, the All Indonesia Chemical, Energy and Mining Workers Union Unit (PUK SP KEP SPSI). Atlantic Copper workers are represented by a committee of 17 members, nine from the Comisiones Obreras (Workers Commission) and eight from the Union General de Trabajadores (General Workers Union). Both unions operate at national level. Management in both companies work closely with labor representatives on an ongoing basis to discuss matters of importance and resolve issues.


2.9.6   Workforce
–As of December 31, 2006:  PT-FI (Indonesia) had nearly 9,000 employees, and 10,720 contract workers. Atlantic Copper (Spain) had 550 employees. FCX and FM Services had 9 and 145 employees respectively in the US. 

2.9.7   Government Organizations
– As a contractor to the Government of Indonesia, PT-FI is regulated by various government agencies, including the Ministry of Mines and Energy, the Ministry of Environment, and others. Non-Governmental Organizations – PT-FI strives to work harmoniously with various non-governmental organizations and to respond to questions and criticisms appropriately. FCX maintains ongoing dialogue with a number of international and local NGOs.

Report Scope

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2.10




 

Contact Person for the report: Bill_Collier@fmi.com   
             William L. Collier

            1615 Poydras Street

            New Orleans, Louisiana, 70112, USA
 

            Telephone: 504-582-1750       Fax: 504-582-4936

          

10 2.11

Reporting Period: January 1, 2006-December 31, 2006

 

10 2.12 Date of most recent previous report: In 2005, FCX filed an “informally conformant” report on the 2005 reporting year; however, this report did not include Sections 1 through 4. Therefore, this item is not applicable.
 
10 2.13

Boundaries of report: This report matches the full range of economic, environmental, and social impacts of the FCX organization. However, certain sales and revenue data is reported as “net of Rio Tinto’s interest”.
 

10 2.14 Significant changes in size, structure, ownership, or products/services that have occurred since the previous report: Since the acquisition of Phelps Dodge did not close until March 2007, and this report covers only the reporting period of 2006, there have been no significant changes since the previous report.
 
10 2.15 Basis for reporting on joint ventures, partially owned subsidiaries, leased facilities, outsourced operations, and other situations, that can significantly affect comparability from period to period and/or between reporting organizations: This report provides information net of our Joint Venture partner’s interest unless otherwise specifically stated. FCX reports on a consolidated level which includes all subsidiaries (wholly and partially owned). FCX does not report on outsourced operations, nor does it lease any facilities, and as of December 31, 2006, there are no situations that would significantly affect comparability from period to period.
 
10 2.16

Explanation of the nature and effect of any re-statements of information provided in earlier reports and the reasons for such re-statement (e.g., mergers/acquisitions, change of base years/periods, nature of business, measurement methods): FCX has not restated any information provided in a prior report, therefore this is not applicable.
 

Report Profile

10 2.17 Decisions not to apply GRI principles or protocols in the preparation of the report: FCX applied GRI principles and protocols in the preparation of this report.
 
10 2.18

Criteria/definitions used in any accounting for economic, environmental, and social costs and benefits: Accounting for economic, environmental, and social costs and benefits is in compliance with all legally applicable standards and regulations.
 

10 2.19 Significant changes from previous years in the measurement methods applied to key economic, environmental, and social information: There were no significant changes from prior years in the measurement methods applied to key economic, environmental, and social information.
 
10 2.20 Policies and internal practices to enhance and provide assurance about the accuracy, completeness, and reliability that can be placed on the sustainability report. This includes internal management systems, processes, and audits that management relies on to ensure that reported data are reliable and complete with regard to the scope of the report: FCX engages both internal and external auditors to ensure financial responsibility and robust controls. In addition, in FCX’s Environmental Policy and in our Social, Employment, and Human Rights Policy, we commit to regular audits to assess our compliance, management systems, and practices. These audits have taken place and the results of external audits have been reported publicly. Additionally, FCX has engaged a third party consultant to verify that a number of the key reported data elements are reliable and complete with regard to the scope of this report.
 
10 2.21 Policy and current practice with regard to providing independent assurance for the full report: This report has been prepared based on the Global Reporting Initiative's (GRI) 2002 Sustainability Reporting Guidelines. For this year's report, certain critical data and assertions made in the report have been subject to independent assurance as defined in the assurance statement (see beginning of report).
 
10 2.22

Means by which report users can obtain additional information and reports about economic, environmental, and social aspects of the organization’s activities, including facility-specific information (if available): Additional information is available through the Company’s web site: www.fcx.com, which also contains information on contacting Company representatives.
 

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3

Governance Structure and Management Systems
 

Structure and Governance
 

1 3.1

Governance structure of the organization, including major committees under the board of directors that are responsible for setting strategy and for oversight of the organization. Describe the scope of responsibility of any major committees and indicate any direct responsibility for economic, social, and environmental performance: As of December 31, 2006, the FCX Board of Directors consisted of 13 members We also have one emeritus director who does not vote. Our board held eight meetings during 2006. In accordance with our corporate governance guidelines, non-management directors met in executive session at the end of each regularly scheduled board meeting. The chair of executive session meetings rotates among the chairpersons of the four standing committees (discussed below), except as the non-management directors may otherwise determine for a specific meeting.
 

Our board has four standing committees: an Audit Committee, a Corporate Personnel Committee, a Nominating and Corporate Governance Committee, and a Public Policy Committee. Each committee operates under a written charter adopted by the board. Our committee charters are available on our web site at www.fcx.com. During 2006, each of our directors attended at least 75% of the aggregate number of board and applicable committee meetings. Directors are invited but not required to attend annual meetings of our stockholders. None of the directors attended the last annual meeting of stockholders (Link to page 3 of 2007 Proxy).
 

1 3.2 Percentage of the board of directors that are independent, non-executive directors. State how the board determines “independence:” On the basis of information solicited from each director, and upon the advice and recommendation of the Nominating and Corporate Governance Committee, the board has affirmatively determined that seven of its thirteen members  as of December 31, 2006 had no material relationship with the company and are thus independent within the meaning of our corporate governance guidelines, which comply with the New York Stock Exchange (NYSE) director independence standards as currently in effect. Further, the board has determined that each of the members of the audit, corporate personnel, and nominating and corporate governance committees has no material relationship with the company and is independent within the meaning of our corporate governance guidelines, which adopt the heightened statutory and NYSE independence standards applicable to audit committee members (Link to page 5 of 2007 Proxy).
 
1 3.3

Process for determining the expertise board members need to guide the strategic direction of the organization, including issues related to environmental and social risks and opportunities: In evaluating nominees for membership on the board, the Nominating and Corporate Governance Committee applies the board membership criteria set forth in our corporate governance guidelines. Under these criteria, the committees take into account many factors, including personal and professional integrity, general understanding of our industry, corporate finance and other matters relevant to the successful management of a large publicly traded company in today’s business environment, educational and professional background, independence, and the ability and willingness to work cooperatively with other members of the board and with senior management. The committee evaluates each individual in the context of the board as a whole, with the objective of recommending nominees who can best perpetuate the success of the business, be an effective director in conjunction with the full board, and represent stockholder interests through the exercise of sound judgment using their diversity of experience in these various areas.
 

3.3.1  Board-level processes for overseeing the organization’s identification and management of economic, environmental, and social risks and opportunities. The Public Policy Committee (PPC) has primary responsibility for assisting the Board of Directors in fulfilling the Board’s oversight responsibilities with respect to the Company’s (1) environmental policy and implementation programs, (2) governmental and community relations and information programs, (3) social, employment, and human rights policies and practices, (4) health and safety programs, and (5) charitable and philanthropic contributions.
 

The PPC meets at least three times annually or more frequently if deemed appropriate. The chairperson of the PPC presides at each meeting and, in consultation with the other members of the PPC and management, sets the agenda for each meeting. The PPC may request that any directors, officers, or employees of the Company, or other persons whose advice and counsel are sought by the PPC, attend any meeting of the PPC to provide information as the PPC requests, but the PPC reserves the right in its discretion to meet at any time in executive session. The Committee delivers regular reports of its activities to the Board. The Committee keeps written minutes of its meetings, which minutes are available to every member of the Board of Directors. The full scope and charter of the Public Policy Committee is available on our web site: www.fcx.com. (Link to page 3 of 2007 Proxy).
 

1 3.4

Linkage between executive compensation and achievement of the organization’s financial and non-financial goals (e.g., environmental performance, labor practices): The Corporate Personnel Committee, which is composed of four independent directors, determines the compensation of our executive officers and administers our annual incentive, long-term incentive, and stock option plans. The committee met four times during 2006.
 

The committee’s executive compensation philosophy is to:
 

 •  Emphasize performance-based compensation that balances rewards for both short- and long-term results and provide high reward opportunities for high performing individuals
 

 •  Tie compensation to the interests of stockholders


 •  Provide a competitive level of total compensation that will attract and retain talented executives.
 

A primary goal of the committee is to position us to attract and retain the highest level of executive talent. To accomplish this goal, the committee has traditionally targeted our total executive compensation levels in the top quartile of comparable companies, including companies in other industries whose operational, corporate financing, and other activities are considered comparable to those activities in which we have engaged in recent years (Link to page 14 of 2007 Proxy).
 

1 3.5

Organizational structure and key individuals responsible for oversight, implementation, and audit of economic, environmental, social, and related policies. Include identification of the highest level of management below the board level directly responsible for setting and implementing environmental and social policies, as well as general organizational structure below the board level: The organizational structure and key individuals responsible for oversight, implementation, and audit of economic, environmental, social, and related policies are described in detail in the 2006 Annual Report and on the FCX Web Site (Link to Executive Management Section of FCX web site).
 

1 3.6

Mission and values statements, internally developed codes of conduct or principles, and policies relevant to economic, environmental, and social performance and the status of implementation. Describe the status of implementation in terms of degree to which the code is applied across the organization in different regions and departments/units. “Policies” refers to those that apply to the organization as a whole, but may not necessarily provide substantial detail on the specific aspects listed under the performance indicators in Part C, Section 5 of the Guidelines.
 

We recognize that economic need must be balanced with responsible social and environmental management so that, in meeting the demands of the present generation, we do not compromise the ability of future generations to meet their own needs. This is the core concept of sustainable development. At FCX, we embrace this responsibility both as our duty as corporate citizens and as a sound and prudent business practice. Working toward sustainable development in our business operations and programs helps ensure a healthy environment and communities in our areas of operation, which is vital to our future success.
 

We have Environmental and Social, Employment, and Human Rights Policies that guide us on the path toward sustainable development. As operators of one of the world’s greatest mines, we recognize the significant challenges we must overcome to stay on that path. Our mining operations impact the surrounding environment and neighboring communities. It is our responsibility and commitment to minimize and mitigate environmental impacts and to maximize the beneficial economic and social results of our operations.
 

This is not a static commitment expressed through rigid programs. We are committed to continuous improvement in our sustainable development performance. This means we assess our environmental management and social development programs annually in a constant search for better ways of doing things. In this regard, we do not rely solely on our own judgment; rather we gain the value of looking at our programs through a “fresh set of eyes” with independent audits. In 2005, we voluntarily submitted to an independent audit of our environmental management systems by the internationally recognized firm of Montgomery Watson Harza. In 2005 and 2006, we underwent an independent audit of our social and human rights programs by the International Center for Corporate Accountability. The results of these audits, which were made public, provided us with invaluable insights and numerous recommendations, now being implemented, that will improve our sustainable development performance.

FCX, PT-FI and Atlantic Copper, S.A. have established a comprehensive Ethics and Business Conduct Policy, which requires all employees to adhere to ethical standards established by the company and consistent with applicable laws, including the U.S. Foreign Corrupt Practices Act (FCPA) and the Sarbanes-Oxley Act. All appropriate company personnel are required to certify annually their adherence to this policy. In addition, employees are required to notify the company compliance officer of any activity, transaction or other information involving a suspected violation of the policy. Any reported incidents or concerns about violations or potential violations are investigated and resolved appropriately.


We conduct periodic training sessions for our managers, supervisors and other personnel so they can identify potential issues and know how to respond appropriately. We also periodically review our policies and procedures to ensure that applicable legal requirements and expectations regarding corporate responsibility are met.
 

See our corporate policies on our web site.
 

We are mining the world’s largest known reserve of copper and gold and our planning horizons extend decades into the future. But we do not make these plans alone. Our operations, projects, and programs are carried out in partnership with the Government of Indonesia, Papua Province, Mimika Regency, and neighboring communities – all of whom have a stake in seeing that ours is a sustainable future that benefits all. We maintain a constant dialogue with our stakeholders.
 

1 3.7

Mechanisms for shareholders to provide recommendations or direction to the board of directors. Include reference to any policies or processes regarding the use of shareholder resolutions or other mechanisms for enabling minority shareholders to express opinions to management: Shareholders may deliver proposals for inclusion in the proxy statement to the Corporate Secretary, Freeport-McMoRan Copper & Gold Inc., One North Central Avenue, Phoenix, Arizona 85004. Shareholders may also present proposals at the annual meeting by submitting them in writing to our Corporate Secretary, at the above address, in accordance with the specific procedural requirements in our by-laws. The by-laws are accessible on our web site at: Corporate Governance/Bylaws. (Link to page 2 of 2007 Proxy).

           

Stakeholder Engagement
 

1 3.8 Basis for identification and selection of major stakeholders. This includes the processes for defining an organization's stakeholders and for determining which groups to engage. FCX, as one of the largest publicly traded mining companies world-wide, engages with a wide variety of stakeholders, including shareholders, employees, government officials, media, community members, and non-governmental organizations. All of these stakeholders are important to us, and we strive to engage all of them so that they have accurate information on our Company.
 
10 3.9 Approaches to stakeholder consultation reported in terms of frequency of consultations by type and by stakeholder group. This could include surveys, focus groups, community panels, corporate advisory panels, written communication, management/union structures, and other vehicles. FCX regularly undertakes a wide variety of stakeholder communication and engagement activities, depending on the specific stakeholders involved and the nature and frequency of information to be communicated. These include surveys, focus groups, community panels, print communication, audio and video broadcasts, informal discussions, and other mechanisms.
 
10 3.10 Type of information generated by stakeholder consultations. Include a list of key issues and concerns raised by stakeholders and identify any indicators specifically developed as a result of stakeholder consultation. Key issues raised by stakeholders include environmental management, social development, revenues, employee relations, transparency and illegal gold panning.
 
10 3.11

Use of information resulting from stakeholder engagements. For example, this could include selecting performance benchmarks or influencing specific decisions on policy or operations. FCX takes seriously all legitimate concerns and issues raised by its stakeholders. In 2006, PT-FI met with government agencies to answer questions about its work practices, hosted over 1,000 visitors from government, community, academia, and other agencies to its Jobsite, participated in industry meetings and conferences, worked cooperatively with local government on infrastructure development and gold panning related issues, and launched new communication programs designed to help employees learn more about the business.

 

Overarching Policies and Management Systems
 

Explanation of whether and how the precautionary approach or principle is addressed by the organization. This could include an example that illustrates the organization’s approach to risk management in the operational planning or the development and introduction of new products. For reference, see the glossary for text of Article 15 of the Rio Principles on the precautionary approach.
 

As a member of ICMM, FCX is  implementing the ICMM Sustainable Development Framework. Principle 4 in the Framework calls for implementing risk management strategies. FCX conducts formal risk assessments relating to operations. For example, formal risk assessments are held relating to structural stability and potential acid rock drainage generation from overburden stockpiles. Identified risks are controlled through the development of Standard Operating Procedures or structural modifications.

 

All operating facilities have environmental management systems certified to ISO 14001. This certification requires that all environmental aspects of the operations be identified and the potential impacts evaluated. Those aspects that have higher degrees of probability and potential damage are addressed in formal Action Plans to reduce or eliminate the impact.
 

10 3.12 Externally developed, voluntary economic, environmental, and social charters, sets of principles, or other initiatives to which the organization subscribes or which it endorses. Include date of adoption and countries/operations where applied: FCX is committed to ensuring that its operations are conducted in a manner consistent with the Universal Declaration of Human Rights and other applicable international standards of human rights, the laws and regulations of the host countries in which FCX operates, and the culture of the people who are indigenous to the Company’s operational areas.  FCX is a signatory to the U.S. State Department-British Foreign Office Voluntary Principles on Security and Human Rights.  As a member of the International Council on Mining and Metals, FCX is committed to implementing the ICMM’s Sustainable Development Framework.
 
2 3.13

Principal memberships in industry and business associations, and/or national/international advocacy organizations. FCX is a member of the International Council on Mining and Metals, the US-ASEAN Business Council, the American Indonesian Chamber of Commerce (New York), the National Mining Association, the National Association of Manufacturers, the United States Chamber of Commerce, the Asia Society, the US-Indonesia Society, and the International Copper Association. FCX is also an Associate Member of the Australian Minerals Council. Through its Indonesian subsidiary, PT-FI, FCX is a member of APINDO, the Indonesian Mining Association, and others.
 

1 3.14

Policies and/or systems for managing upstream and downstream impacts, including:
 

 •  Supply chain management as it pertains to outsourcing and

 •  Supplier environmental and social performance; and

 •  Product and service stewardship initiatives.


FCX requires all of its subsidiaries, affiliates and on-site contractors to comply with FCX’s Environmental and Social, Employment, and Human Rights Policies or to develop substantively similar policies of their own.
 

1 3.15

Reporting organization’s approach to managing indirect economic, environmental, and social impacts resulting from its activities. See below (under Economic Performance Indicators) for a discussion of indirect economic impacts. FCX is fully committed to minimizing and mitigating negative environmental impacts while maximizing the social and economic benefits of its operations.  (Link to 2006 WTSD).
 

2 3.16

Major decisions during the reporting period regarding the location of, or changes in, operations. Explain major decisions such as facility or plant openings, closings, expansions, and contractions. There were no significant changes in operations during the reporting period.
 

2 3.17

Programs and procedures pertaining to economic, environmental, and social performance. Include discussion of:

 •  Priority and target setting

 •  Major programs to improve performance

 •  Internal communication and training

 •  Performance monitoring

 •  Internal and external auditing

 •  Senior management review.
 

The 2006 Working Toward Sustainable Development Report contains detailed information about our programs and procedures pertaining to economic, environmental, and social performance.  (Link to 2006 WTSD).
 

2 3.18

Status of certification pertaining to economic, environmental, and social management systems. Include adherence to environmental management standards, labor, or social accountability management systems, or other management systems for which formal certification is available. In our Environmental Policy, we commit to regular internal and external environmental audits to assess our environmental compliance, management systems and practices. In 2006, three environmental audits were conducted:
 

 •  Crescent Technology Inc., representing the Freeport-McMoRan Copper & Gold Inc. Board of Directors and senior management, audited PT-FI’s operations as part of the annual corporate internal auditing program.
 

 •  The International Certification Services Division of Société Générale de Surveillance (SGS), an International Standardization Organization (ISO) 14001 registration and certification organization based in Geneva, Switzerland, with offices in Indonesia, performed a surveillance audit on PT-FI’s environmental management system, a requirement for maintaining our ISO 14001 certification.
 

 •  FCX is committed to independent, external environmental audits every three years, the results of which are made public.  External independent environmental audits were conducted in 1996, 1999, 2002 and 2005. (Link to 2005 Montgomery Watson Harza Audit on www.fcx.com).
 

 •  PT-FI participated in the environmental management performance rating program, known as PROPER, conducted by the Indonesian Ministry of Environment. A number of recommendations resulted from the PROPER review and these are being implemented.


 •  In December, the Minister of Energy and Minerals Resources presented PT-FI with the Gold Environmental Award. This award is recognition for PT-FI’s environmental effort in erosion and sediment management in mining activities.
 

In our Social, Employment, and Human Rights Policy, we commit to periodically engaging an independent firm to audit the Company’s implementation of the Policy to assess its effectiveness and the extent of the Company’s compliance. We engaged the International Center for Corporate Accountability to conduct this audit in 2004, the results of which are available on FCX’s web site.
 

In 2006, FCX engaged ICCA to conduct a follow-up to the original audit. This included assessment of our implementation of recommended changes identified in the first phase of the audit, as well as assessing company-funded healthcare programs and the compliance of major contractors and privatized partners with the company’s Social, Employment, and Human Rights Policy. The follow-up report is to be issued in 2007.

   

Section 4
 

On November 19, 2006, FCX and Phelps Dodge Corporation announced that they had signed a definitive merger agreement whereby FCX would acquire Phelps Dodge for approximately $25.9 billion in cash and stock. The shareholders of both companies approved the transaction on March 13 and 14, 2007, and the transaction was completed on March 19, 2007. The information contained in this report, which covers the reporting period
January 1, 2006, through December 31, 2006, does not reflect the impact of this transaction.

 

ICMM
Principle

Description of Indicator

2005 Response

2006 Response

     Economic Performance Indicators
9 EC1
Net sales.
Link to page 60 of 2005 Annual Report, Revenues. Revenues for 2006 were $5.791 billion. Link to page 22 of 2006 Annual Report, Revenues.
9

EC2
Economic breakdown of markets.

 

Link to page 88 of 2005 Annual Report, Chart. FCX revenues attributable to various countries based on the location of the customer were: Spain $1.38 billion, Japan $1.24 billion, Indonesia $1.2 billion, India $388 million, Korea $377 million, Belgium $215 million, Switzerland $177 million, and others $810 million, Link to page 80 of 2006 Annual Report, Chart.
9

EC3
Cost of all goods, materials, and services purchased.

Link to page 60 of 2005 Annual Report, Production and Delivery. Production and delivery costs in 2006 were $2.53 billion.
Link to page 55 of 2006 Annual Report, Production and Delivery.
9