Management’s Discussion and Analysis Operating Activities  PT Smelting Operating Results – 2004 Compared with 2003 PT Smelting Operating Results – 2003 Compared with 2002 CAPITAL RESOURCES AND LIQUIDITY 34 |  FREEPORT-McMoRan COPPER & GOLD INC. Our total 2004 capital expenditures were $141.0 million  compared to $139.2 million in 2003. The largest individual  capital expenditures for 2004 primarily related to long- term development projects, including development of the  DOZ mine, totaling approximately $37 million. Our 2003  capital expenditures included the expansion of the DOZ  mine (approximately $22 million) and work on the Grasberg  overburden handling system (approximately $21 million).  Capital expenditures in 2002, which totaled $188.0 million,  included costs at the Grasberg open-pit operations totaling  approximately $59 million for replacement capital such as  new trucks, shovels, and major development costs totaling  approximately $69 million for the overburden handling  system and the DOZ mine. Our operating cash flows vary with prices realized for copper  and gold sales, our production levels, production costs, cash  payments for income taxes and interest, working capital  changes and other factors. Based on the current strong prices  for copper and gold and our current mine plans, we expect  to generate cash flows significantly above our planned  capital expenditures, scheduled debt maturities and other  cash requirements in 2005 and for the foreseeable future.  We may use available cash to reduce debt in advance of  scheduled maturities, pay additional dividends (see discus- sion of supplemental dividends below) or purchase shares  of our common stock under our share purchase program,  depending on our financial results, cash requirements,  future prospects and other factors. PT Smelting treated 824,800 metric tons of concentrate in  2003, 15 percent more than the 719,600 metric tons treated  in 2002. PT Smelting’s copper cathode cash production costs  per pound totaled $0.10 in 2003, compared with $0.14 in  2002, reflecting the impact of the 28-day maintenance  turnaround in May 2002. PT Smelting reported production of 464.0 million pounds  of cathodes and sales of 462.9 million pounds of cathodes  in 2004, compared with production of 492.4 million pounds  and sales of 493.5 million pounds in 2003. PT Smelting’s unit  cathode cash production costs averaged $0.12 per pound  in 2004 and $0.10 per pound in 2003. The 2004 unit costs  reflect the impact of lower volumes in 2004 resulting from  the scheduled maintenance turnaround. Operating cash flows totaled $572.1 million in 2003,  compared with $512.7 million in 2002. Working capital,  excluding cash, increased by $18.1 million in 2002 primarily  because of increases in accounts receivable and inventories,  partly offset by an increase in accrued income taxes payable.  Operating activities are expected to generate positive  cash flows for the foreseeable future based on anticipated  operating results and metal prices. Using current sales  estimates and assuming metals prices of $1.35 per pound of  copper and $420 per ounce of gold, we expect our consoli- dated operating cash flows to exceed $1.1 billion in 2005.  Each $0.10 per pound change in copper prices would affect  2005 cash flows by approximately $75 million, including  the effects of price changes on royalty costs and treatment  charges, and each $25 per ounce change in gold prices would  affect 2005 cash flows by approximately $36 million. Investing Activities PT Freeport Indonesia accounts for its 25 percent interest  in PT Smelting using the equity method and provides  PT Smelting with substantially all of its concentrate  requirements (see Note 9 of “Notes to Consolidated Financial  Statements”). During the second quarter of 2004, PT Smelting  completed a 31-day maintenance turnaround and resumed  normal operations. Major maintenance turnarounds of this  duration typically occur approximately every four years for PT  Smelting, with significantly shorter-term maintenance turn- arounds in the interim. PT Smelting also completed a refinery  expansion during the maintenance turnaround, increasing its  production capacity to approximately 250,000 metric tons of  copper metal per year. PT Smelting treated 758,100 metric  tons of concentrate in 2004 and 824,800 metric tons in 2003. Our operating cash flows totaled $341.4 million in 2004,  including $85.9 million received as a settlement from  insurance coverage related to the fourth-quarter 2003 slippage  and debris flow events (see discussion above) and $130.7  million in working capital requirements, compared with $572.1  million in 2003. The decrease in 2004 from the prior year  reflects the extended maintenance turnaround at Atlantic  Copper and increased working capital requirements. For 2004,  significant uses of cash from operating activities included  increases in deferred mining costs, accounts receivable  and inventories. For 2003, significant uses included increases  in deferred mining costs and inventories, and payment of  income taxes, partly offset by an increase in our accounts  payable and accrued liabilities. We have $195 million available  under our revolving credit facility and no amounts have been  borrowed under this facility. At December 31, 2004, we had  $551.5 million of cash and cash equivalents. 