Management’s Discussion and Analysis 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. 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.  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  SMELTING AND REFINING OPERATIONS Atlantic Copper Operating Results Years Ended December 31,  2004  2003  2002 (In Millions)  Gross (loss) profit $  (69.4)  $  (10.7)  $  11.2 Add depreciation and amortization expense  28.6  28.5  27.7 Other 16.4$^{a}$  4.6  4.5 Cash (deficit) margin $  (24.4)$^{b}$  $  22.4  $  43.4 Operating (loss) income (in millions)  $  (83.5)  $  (21.8)  $  2.6 Concentrate and scrap treated (metric tons)   768,100   964,400   1,016,700 Anodes production (000s of pounds)   494,400   640,000  657,000 Treatment rates per pound  $  0.16  $  0.16  $  0.17 Cathodes, wire rod and wire sales (000s of pounds)   479,200   546,800  556,500 Cathode cash production cost per pound before hedging  $  0.25  $  0.16  $  0.12 Gold sales in anodes and slimes (ounces)   316,700   929,700  813,900 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. 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 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  Atlantic Copper reported operating losses of $83.5 million  in 2004 and $21.8 million in 2003. The higher losses in 2004  Atlantic Copper Operating Results – 2004 Compared with 2003 32 |  FREEPORT-McMoRan COPPER & GOLD INC.