Security and Ethics

www.fcx.com

 Freeport-McMoRan Copper & Gold
II. SOCIAL CHANGE AND DEVELOPMENT
PROVISION OF SECURITY

Consistent with our Contract of Work, corporate responsibility and the Voluntary Principles on Human Rights and Security as well as our company's duty to protect its employees and property, PT Freeport Indonesia has taken appropriate steps to provide a safe and secure working environment. As part of its security program, the company maintains its own internal security department, which performs functions such as protecting company facilities, monitoring the shipment of company goods through the airport and terminal, assisting in traffic control and aiding rescue operations. PT Freeport Indonesia's civilian security employees (numbering about 670) are unarmed and perform duties consistent with their internal security role. For 2003, the total costs for its internal civilian security department were $13.9 million ($11.2 million net to PT Freeport Indonesia). The security department receives human rights training and each member is required to certify his compliance with our human rights policy.

PT Freeport Indonesia, on the same basis as all businesses and residents of Indonesia, relies on the Government of Indonesia for the provision of public order, upholding the rule of law and protection of personnel and property. The Grasberg mine has been designated by the Indonesian government as one of Indonesia's vital national assets. This designation results in the military's playing a significant role in protecting the area of company operations. The government is responsible for employing police and military personnel and funding and directing their operations. From the outset of PT Freeport Indonesia's operations, the government has looked to the company to provide logistical and infrastructure support and supplemental funding for these necessary services, because of the limited resources of the government and the remote location and lack of development in Papua. The need for this type of support is not unique to the company nor is it limited to the security arena in Indonesia.

Prior to a civil disturbance incident in Tembagapura in 1996, there was limited and inadequate infrastructure for government security personnel. Following company discussions with the government in the aftermath of the civil disturbance, the government conducted a complete review of our project area - which encompasses 700,000 acres and currently has a population of more than 120,000 - and subsequently implemented a new comprehensive approach to security in the area. In addition, the local Mimika government became a full Kabupaten, a larger governmental entity encompassing a larger geographic area and requiring more government personnel, including police and military. The number of government security personnel grew from 200 to over 2,000, including, among other units, Coast Guard at the portsite, Air Force at the airport, riot control personnel to deal with civil disturbances, and both perimeter and on-site security at the mine and the mill.
The population in Timika, the largest local community in the PT Freeport Indonesia operations area, has grown from fewer than 1,000 in the early 1970's to more than 80,000 today.

 
In addition to establishing separate infrastructure (such as offices and housing), the support and assistance for the government-provided security in Papua includes mitigating living costs and the hardship elements of posting in Papua, better ensuring that personnel are properly fed and lodged, and have the logistical resources to patrol company roads and secure its operating area. Oversight of support requests is conducted to verify that only appropriate and legitimate requests are granted.

This support for the government security institutions assigned to the company's area of operations represents a prudent response by our company to protect its workforce and property, especially considering the expectations imposed by the government on companies conducting business in remote areas of Indonesia. In addition, the provision of support is consistent with the company's obligations under the Contract of Work, our philosophy of responsible corporate citizenship, the joint U.S. State Department-British Foreign Office Voluntary Principles on Human Rights and Security, and is in keeping with our commitment to pursue practices to promote human rights.

For 2003, the total expenses associated with support for government-provided security for the operations were $7.3 million ($5.9 million net to PT Freeport Indonesia). The support consists of costs incurred and allocated by the company for infrastructure, food, housing, fuel, travel, vehicle repairs, allowances to cover incidental and administrative costs, and community assistance programs conducted by the military and police. The total capital costs for associated infrastructure for 2003 was $0.8 million ($0.6 million net to PT Freeport Indonesia).
AUGUST 31, 2002 INCIDENT

A shooting incident involving unknown assailants on a remote section of the mountain road near the PT Freeport Indonesia mine on August 31, 2002 resulted in the deaths of two American teachers and an Indonesian teacher and injuries to ten other individuals. The Indonesian government subsequently enhanced security at our operations and there have been no further incidents of this kind. The Government of Indonesia and the U.S. Federal Bureau of Investigation continue to actively investigate this terrible criminal act. PT Freeport Indonesia has supported and cooperated fully with the investigations and sincerely hopes that the perpetrators, whoever they are, will soon be brought to justice. After meeting in Bali, Indonesia on October 22, 2003, U.S. President George W. Bush and Indonesian President Megawati Soekarnoputri issued a joint statement expressing their sorrow over the killings, noting that the joint Indonesian/U.S. investigations were proceeding well, and reaffirming their "shared commitment to find the murderers and bring them to justice, whoever they may be."
 

ONGOING DIALOGUE WITH OUR NEIGHBORS helps to develop mutual understanding and partnership for sustainable development programs. Pictured, Gabrielle McDonald (second from left), Special Counsel on Human Rights to the Chairman of the Board of Freeport-McMoRan Copper & Gold Inc., and community leaders in Timika.

 

POLITICAL ISSUES

On July 5, 2004, Indonesia, an emerging democracy, is scheduled to hold its first-ever direct Presidential election. The central government in Indonesia has also approved a measure granting greater autonomy to its provinces. Many leaders in the Province of Papua, where PT Freeport Indonesia's operations are located, continue to dispute the manner in which the autonomy measure is being implemented. In addition, the central government has approved a measure dividing the Province of Papua into three provinces to improve governance and this has also been opposed by some Papuans, while other Papuans support it. In August 2003, when Papuan supporters of the partitioning attempted to implement creation of the new Central Irian Jaya Province, which includes PT Freeport Indonesia, conflict erupted in Timika, the largest city in the area of our operations with a population estimated at 80,000. Fighting between Papuans supporting and opposing the new province resulted in five deaths and allegations from both sides of other human rights violations.

As a private contractor to the Republic of Indonesia, PT Freeport Indonesia takes no position for or against any candidate for political office. We have had excellent working relationships with four Indonesian presidential administrations and fully expect that relationship will continue with the next administration. In addition, as a contractor to the government, we do not take a position on issues that are the purview of the Indonesian government, such as autonomy and partitioning of the Province of Papua. However, we strongly support democratic dialogue and peaceful resolution of these issues.
MAKING BUSINESS ETHICS A PRIORITY

Freeport-McMoRan Copper & Gold Inc., PT Freeport Indonesia and Atlantic Copper, S.A. have in place 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 Ethics and Business Conduct Policy on our web site (www.fcx.com).
 
Dolphins feed along the coast of the Arafura Sea in the PT Freeport Indonesia Project Area.

 

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