Management’s Discussion and Analysis impact of the fourth-quarter 2003 open-pit slippage and debris  flow events and the subsequent clean-up efforts. At the DOZ  underground mine, production averaged 40,500 metric tons of  ore per day for 2003, compared with 21,800 metric tons of ore  per day for 2002. Production from the Intermediate Ore Zone  averaged 6,800 metric tons of ore per day for 2003 and 19,300  metric tons of ore per day for 2002. PT Freeport Indonesia reported record-low average unit net  cash production costs of a net credit of $(0.02) per pound  in 2003, compared with $0.08 per pound in 2002. Unit site  production and delivery costs in 2003 averaged $0.48 per  pound of copper, $0.12 per pound higher than the $0.36 in  2002 primarily because of lower copper sales volumes. Higher  mine maintenance costs, stronger Indonesian and Australian  currencies and higher energy costs also resulted in higher  costs compared with 2002.  Gold credits for 2003 of $0.70 per pound were higher  than the gold credits of $0.48 per pound in 2002 primarily  because of higher gold sales volumes and prices in 2003. Gold  ore grades for 2003 improved by 24 percent to 1.54 grams per  metric ton in 2003 from 1.24 grams per metric ton in 2002.  As a result of the lower copper production and sales in 2003,  PT Freeport Indonesia’s depreciation rate per pound of copper  increased to $0.15 for 2003 compared with $0.14 for 2002. PT Freeport Indonesia sells its copper concentrates primarily  under long-term sales agreements denominated in U.S.  dollars, mostly to companies in Asia and Europe and to inter- national trading companies. PT Freeport Indonesia’s share of  sales for 2005 is projected to approximate 1.5 billion pounds  of copper and 2.9 million ounces of gold, and to average  1.36 billion pounds of copper and 2.2 million ounces of gold  annually over the next five years (2005-2009). PT Freeport  Indonesia expects its sales for the first quarter of 2005  to approximate 310 million pounds of copper and 520,000  ounces of gold. Also, based on the current mine plan for  2005, PT Freeport Indonesia estimates approximately 54  percent of its copper and 60 percent of its gold will be  produced in the second half of 2005. Because of the nature  of the Grasberg ore body, the sequencing in mining will  cause ore grades to vary from quarter to quarter, particularly  for gold. PT Freeport Indonesia has long-term contracts to provide  approximately 60 percent of Atlantic Copper’s copper concen- trate requirements at market prices and nearly all of  PT Smelting’s copper concentrate requirements. Under the  PT Smelting contract, for the first 15 years of PT Smelting’s  operations beginning December 1998, the treatment and  refining charges on the majority of the concentrate PT Freeport  Indonesia provides will not fall below specified minimum  rates, subject to renegotiation in 2008. The rate was $0.23  per pound during the period from the commencement of  The Indonesian government previously approved suspen- sions of our field exploration activities outside of our  current mining operations area, which have been in suspen- sion in recent years due to safety and security issues  and regulatory uncertainty relating to a possible conflict  between our mining and exploration rights in certain forest  areas and an Indonesian Forestry law enacted in 1999  prohibiting open-pit mining in forest preservation areas. The  current suspensions were granted for one-year periods ending  February 26, 2005, for Block B; March 31, 2005, for PT Nabire  During 2004, net additions and revisions to the aggregate  proven and probable reserves at the Grasberg mining complex  totaled approximately 141 million metric tons of ore repre- senting increases of 2.9 billion recoverable pounds of copper,  2.2 million recoverable ounces of gold and 18.9 million  recoverable ounces of silver. The additions were primarily the  result of positive drilling results at the Deep Mill Level Zone  ore body, a 146-million-metric-ton ore body. We expect to  complete additional engineering studies evaluating drilling  results on the western side of the ore body in 2005,  which could increase the size of the ore body. Our aggregate  exploration budget for 2005, including Rio Tinto’s share, is  expected to total approximately $21 million ($15 million for  our share) with most of the effort focused on testing the  Mill Level Zone and Deep Mill Level Zone deposits to the  northwest, expansion of the underground Grasberg resource,  and testing reconnaissance targets along the Wanagon and  Idenberg fault trends. Net of Rio Tinto’s share, PT Freeport  Indonesia’s share of proven and probable recoverable reserves  as of December 31, 2004, was 40.5 billion pounds of copper,  46.5 million ounces of gold and 124.5 million ounces of  silver. FCX’s equity interest in proven and probable recov- erable reserves as of December 31, 2004, was 36.7 billion  pounds of copper, 42.1 million ounces of gold and 112.8  million ounces of silver (see Note 13 of “Notes to Consolidated  Financial Statements”). PT Freeport Indonesia’s share of  reserve additions replaced approximately 175 percent of its  2004 copper production, 90 percent of 2004 gold production  and 330 percent of 2004 silver production. Estimated recov- erable reserves were assessed using a copper price of $0.85  per pound and a gold price of $270 per ounce. If we adjusted  metal prices used in our reserve estimates to the approxi- mate average London spot prices for the past three years  ($0.94 per pound of copper and $361 per ounce of gold),  the additions to proven and probable reserves would not be  material to reported reserves. PT Smelting’s operations in 1998 until April 2004, when it  declined to a minimum of $0.21 per pound. Market rates,  excluding price participation, under long-term contracts  settled in late 2004 approximate $0.21 per pound. Exploration and Reserves PT Freeport Indonesia Sales Outlook 2004 ANNUAL REPORT  | 31