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Provision of Security

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Provision of Security

Consistent with our Contract of Work, our responsibility as a corporate citizen 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 approximately 700) are unarmed and perform duties consistent with their internal security role. For 2004, the total costs for PT Freeport Indonesia’s internal civilian security department were $13.4 million ($12.3 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 continually evaluates its human rights training programs to seek ways to improve them.

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 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.

PT Freeport Indonesia maintains its own internal security department, a team of approximately 700 employees, who receive human rights training. External security is provided by the Indonesian Government.

The Company's project area is large - encompassing 283,286 hectares and currently having a population of more than 120,000. The government continuously assesses the security situation for the project area and makes adjustments to the police and military presence as it deems necessary to provide adequate security to the mine as well as the surrounding area, which primarily consists of the local Kabupaten of Mimika. The government security personnel assigned to the area currently number approximately 2,400, 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.

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 and secure the Company's 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 2004, the expenses associated with support for Government-provided security for the operations were approximately $7.5 million ($6.9 million net to PT Freeport Indonesia). The support consisted 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 capital costs for associated infrastructure for 2004 was $0.2 million.