Notes To Consolidated Financial Statements A large part of the mineral royalties under Government  of Indonesia regulations is designated to the provinces  from which the minerals are extracted. In connection with  its fourth concentrator mill expansion completed in 1998,  PT Freeport Indonesia agreed to pay the Government of  Indonesia additional royalties (royalties not required by the  Contract of Work) to provide further support to the local  governments and the people of the Indonesian province  of Papua. The additional royalties are paid on metal from  production from PT Freeport Indonesia’s milling facilities  above 200,000 metric tons of ore per day. The additional  royalty for copper equals the Contract of Work royalty rate,  and for gold and silver equals twice the Contract of Work  royalty rates. Therefore, PT Freeport Indonesia’s royalty  rate on copper net revenues from production above 200,000  metric tons of ore per day is double the Contract of Work  royalty rate, and the royalty rates on gold and silver sales  from production above 200,000 metric tons of ore per day  are triple the Contract of Work royalty rates. The combined  royalties, including the additional royalties, which became  effective January 1, 1999, totaled $43.5 million in 2004,  $26.5 million in 2003 and $24.5 million in 2002. PT Freeport Indonesia’s concentrate sales agreements,  including its sales to Atlantic Copper and PT Smelting,  provide for provisional billings based on world metals prices  when shipped, primarily using then-current prices on the  London Metal Exchange (LME). Final settlement on the  copper portion is generally based on the average LME price  for a specified future period, generally three months after  the month of arrival at the customer’s facility. PT Freeport  Indonesia’s concentrate sales agreements do not allow for  net settlement and always result in physical delivery. Final  delivery to customers in Asia generally takes up to 25 days  and to customers in Europe generally takes up to 57 days. Under SFAS No. 133, PT Freeport Indonesia’s sales based  on a provisional sales price contain an embedded derivative  which is required to be bifurcated from the host contract.  The host contract is the sale of the metals contained in the  concentrates at the current spot LME price. PT Freeport  Indonesia applies the normal purchase and sale exception  allowed by SFAS No. 133 to the host contract in its concen- trate sales agreements because the sales always result in  physical delivery. Revenues based on provisional sales prices  totaled $391.5 million at December 31, 2004. The embedded  derivative, which does not qualify for hedge accounting, is  marked-to-market through earnings each period. At December  31, 2004, FCX had consolidated embedded copper deriva- tives on 292.2 million pounds recorded at an average price  of $1.45 per pound based on forward prices for the expected  settlement dates. All of these derivatives are expected to  be finally priced during the first half of 2005. The impact of  fluctuations in the forward prices used for these derivatives  through the settlement date is reflected as derivative gains  and losses in revenues. A two-cent movement in the average  price used for these derivatives would have an approximate $3  million impact on FCX’s 2005 net income. Gold sales are priced  according to individual contract terms, generally the average  London Bullion Market Association price for a specified  month near the month of shipment. At December 31, 2004,  FCX had consolidated embedded gold derivatives on 123,400  ounces recorded at an average price of $438 per ounce. For  2004, 2003 and 2002, the maximum net price adjustment to  revenues after initial recognition was seven percent for copper  revenues and two percent for gold revenues. Foreign Currencies.  Transaction gains and losses  associated with Atlantic Copper’s euro-denominated and PT  Freeport Indonesia’s rupiah-denominated monetary assets  and liabilities are included in net income. Atlantic Copper’s  euro-denominated net monetary liabilities totaled $74.0  million at December 31, 2004, based on an exchange rate  of $1.36 per euro. Excluding hedging amounts, net Atlantic  Copper foreign currency transaction losses totaled $1.6  million in 2004, $13.6 million in 2003 and $11.9 million  in 2002. PT Freeport Indonesia’s rupiah-denominated net  monetary liabilities totaled $7.7 million at December 31,  2004, based on an exchange rate of 9,270 rupiah to one U.S.  dollar. Excluding hedging amounts, net PT Freeport Indonesia  foreign currency transaction losses totaled $0.7 million in  2004, $3.0 million in 2003 and $3.5 million in 2002. Comprehensive Income.  FCX follows SFAS No. 130,  “Reporting Comprehensive Income,” for the reporting and  display of comprehensive income (net income plus other  comprehensive income, or all other changes in net assets from  nonowner sources) and its components. FCX’s comprehensive  income for 2004, 2003 and 2002 follows (in thousands): PT Freeport Indonesia pays royalties under a Contract of Work (see Note 10). The copper royalty rate payable by  PT Freeport Indonesia under its Contract of Work varies from  1.5 percent of copper net revenue at a copper price of $0.90  or less per pound to 3.5 percent at a copper price of $1.10 or  more per pound. The Contract of Work royalty rate for gold  and silver sales is 1.0 percent. 58 |  FREEPORT-McMoRan COPPER & GOLD INC.