Management’s Discussion and Analysis include a $12.0 million charge for workforce reductions, lower  treatment charges and lower production levels, compared with  2003. The effect of the 51-day turnaround on Atlantic Copper’s  results for 2004 was approximately $40 million, including an  approximate $12 million impact from lower volumes.  During 2004, Atlantic Copper undertook a cost reduction  and operational enhancement plan designed to reduce  unit costs, including a reduction in workforce, and enhance  operational and administrative efficiencies. The workforce  reductions are expected to result in annual cost savings of  approximately $8 million. In addition, in December 2004,  Atlantic Copper completed a sale of its wire rod and wire  assets for $18.3 million cash, resulting in a $7.5 million gain.  The sale will enable Atlantic Copper to simplify its business  and management structure and reduce working capital require- ments. These actions, together with recently negotiated  higher treatment charges for 2005, are expected to improve  operating results for Atlantic Copper in 2005 significantly. In March 2004, we used a portion of the proceeds from  the sale of our 6  7 /8% Senior Notes to repay $162.4 million  of Atlantic Copper borrowings (see “Capital Resources and  Liquidity – Financing Activities”). Atlantic Copper recorded  a $3.7 million ($0.02 per share) accounting charge for losses  on early extinguishment of debt. As of December 31, 2004,  FCX’s net investment in Atlantic Copper totaled $97.4 million,  FCX had $189.5 million of loans outstanding to Atlantic  Copper and Atlantic Copper’s debt under financing arrange- ments that are nonrecourse to FCX totaled $12.3 million. We defer recognizing profits on PT Freeport Indonesia’s  sales to Atlantic Copper and on 25 percent of PT Freeport  Indonesia’s sales to PT Smelting until the final sales to  third parties occur. Changes in these net deferrals resulted  in a reduction to our operating income totaling $24.7  million ($12.7 million to net income or $0.07 per share)  in 2004, compared with an addition totaling $13.8 million  ($7.1 million to net income or $0.04 per share) in 2003. At  December 31, 2004, our net deferred profits on PT Freeport  Indonesia concentrate inventories at Atlantic Copper and  PT Smelting to be recognized in future periods’ net income after taxes and minority interest sharing totaled  $41.6 million.  The amount of profit we defer varies with the timing  of concentrate shipments and metal prices. In 2003, we  recognized previously deferred profit because of reduced  shipments to Atlantic Copper and PT Smelting caused by  lower production from PT Freeport Indonesia’s open  pit following the fourth-quarter slippage and debris flow  events. PT Freeport Indonesia resumed normal milling rates  in June 2004 after accelerating the removal of overburden  and mining low-grade ore following the fourth-quarter 2003  events. As a result of the return to normal milling rates,  concentrate shipments to Atlantic Copper and PT Smelting  increased in the second half of 2004. These increased  shipments and higher metal prices caused the net deferrals  and reduction in 2004 operating results. Based on current  copper and gold prices and shipping schedules, we expect  that a deferral of profits on intercompany sales will result in  a decrease to net income of $22 million in the first quarter  of 2005 as PT Freeport Indonesia’s shipments to affiliated  smelters continue to increase. The actual change in deferred  intercompany profits may differ substantially because of  changes in the timing of shipments to affiliated smelters and  metal prices. Atlantic Copper’s cash margin of $22.4 million in 2003 was  $21.0 million lower, compared with $43.4 million in 2002,  primarily because of lower treatment charge rates and higher  unit costs. Atlantic Copper’s cathode cash production costs  per pound of copper, before currency hedging, averaged $0.16  in 2003 and $0.12 in 2002. The higher unit costs in 2003  primarily reflect a stronger euro in relation to the U.S. dollar,  which added approximately $0.03 per pound to the 2003 costs  when compared to the 2002 costs. Atlantic Copper’s average  treatment rates were at historically low levels of $0.16 per  pound for 2003 and $0.17 per pound for 2002. Atlantic Copper recorded an operating loss of $21.8 million  in 2003, compared with operating income of $2.6 million in 2002. Atlantic Copper’s operating results also include a $9.6  million gain in 2003 and a $1.2 million charge in 2002 on  currency hedging contracts maturing during the year. The  effect of changes in the deferred profits on PT Freeport  Indonesia’s sales to Atlantic Copper and on 25 percent of  PT Freeport Indonesia’s sales to PT Smelting resulted in  additions to our operating income totaling $13.8 million  ($7.1 million to net income or $0.04 per share) in 2003  and reductions totaling $28.8 million ($14.8 million to net  income or $0.10 per share) in 2002. Years Ended December 31, 2004  2003  2002 (In Millions) PT Freeport Indonesia sales  to PT Smelting  $696.0  $510.2  $391.1 Equity in PT Smelting  earnings (losses)  2.0  5.6  (4.2) PT Freeport Indonesia operating  profits (deferred) recognized   (13.8)  7.0  (8.4) 2004 ANNUAL REPORT  | 33 PT Smelting Operating Results Atlantic Copper Operating Results – 2003 Compared with 2002