Management’s Discussion and Analysis of copper and gold and other factors. A change of $0.10  in the average price per pound of copper would have an  approximate $150 million impact on our 2005 consolidated  revenues and an approximate $75 million impact on our 2005  consolidated net income, assuming approximately 1.5 billion  pounds of 2005 PT Freeport Indonesia copper sales. A change  of $25 in the average price per ounce of gold would have an  approximate $72 million impact on our 2005 consolidated  revenues and an approximate $36 million impact on our 2005  consolidated net income, assuming approximately 2.9 million  ounces of 2005 PT Freeport Indonesia gold sales. At times, in response to market conditions, we have in  the past and may in the future enter into copper and gold  price protection contracts for some portion of our expected  future mine production to mitigate the risk of adverse price  fluctuations. We currently have no commodity price protec- tion contracts relating to our mine production other than  our gold-denominated and silver-denominated preferred stock  discussed below. PT Freeport Indonesia’s concentrate sales agreements, with  regard to copper, provide for provisional billings at the time  of shipment with final pricing settlement generally based on  the average LME price for a specified future period. Under  SFAS No. 133, “Accounting for Derivative Instruments and  Hedging Activities,” PT Freeport Indonesia’s sales based on  a provisional sales price contain an embedded derivative,  which we bifurcate from the sale of the concentrates at the  current spot LME price. The embedded derivative, which  does not qualify for hedge accounting, is marked-to-market  through earnings each period until the date of final copper  pricing (see Note 1 of “Notes to Consolidated Financial  Statements”). At December 31, 2004, we had consolidated  embedded derivatives on copper sales totaling 292.2 million  pounds recorded at an average price of $1.45 per pound. We  expect final prices on these sales over the next few months.  We estimate that a two-cent movement in the average price  used for these embedded derivatives will have an approxi- mate $3 million impact on our 2005 consolidated net income. We have outstanding two issues of redeemable preferred  stock, which have cash dividend and redemption requirements  indexed to gold and silver prices. We account for these  securities as a hedge of future production and reflect them  as debt on our balance sheets at their original issue value  less redemptions. As redemption payments occur, differ- ences between the carrying value and the redemption  payment, which is based on commodity prices at the time  of redemption, are recorded as an adjustment to revenues  (see Notes 1, 5 and 11 of “Notes to Consolidated Financial  Statements”). During 2003, we redeemed all our gold-denomi- nated preferred stock due in August 2003 and made an annual  partial redemption of our silver-denominated stock. We paid  $221.3 million to redeem these securities, which had a book  balance of $245.1 million. We recorded the $23.8 million  gain as revenues. In August 2004, we funded the sixth of  eight scheduled annual redemption payments on our Silver- Denominated Preferred Stock for $13.9 million. The mandatory  redemption resulted in a $12.5 million decrease in debt and a  hedging loss to revenues of $1.4 million ($0.7 million to net  income or less than $0.01 per share) in 2004. Future redemp- tion payments denominated in ounces and equivalent value in  dollars, as well as dollar-equivalent dividend payments, based  on the December 31, 2004, London A.M. gold fixing price for  one ounce of gold ($438.00) and the London silver fixing  price for one ounce of silver ($6.82) in the London bullion  market (which determine the preferred stock redemption and  dividend amounts), follow (dollars in millions): its price risk whenever its physical purchases and sales  pricing periods do not match. At December 31, 2004, Atlantic  Copper had contracts, with a fair value of $(0.9) million,  to sell 12.7 million pounds of copper at an average price of  $1.40 per pound through March 2005. Our operations are in Indonesia and Spain, where our func- tional currency is the U.S. dollar. All of our revenues and a  significant portion of our costs are denominated in U.S.  dollars; however, some costs and certain asset and liability  accounts are denominated in Indonesian rupiah, Australian  Atlantic Copper prices its purchases of copper concentrate  at approximately the same time as it sells the refined copper,  thereby protecting Atlantic Copper from most copper price  risk. Atlantic Copper enters into futures contracts to hedge  The fair values of the redeemable preferred stock, based on  December 31, 2004, quoted market prices of $43.65 per  depositary share for our gold-denominated preferred stock  due in 2006 and $7.40 per depositary share for our silver- denominated preferred stock, were $187.9 million for the  preferred stock indexed to gold prices and $35.2 million for  the preferred stock indexed to silver prices. 2004 ANNUAL REPORT  | 39 Foreign Currency Exchange Risk Gold  Silver Redemption Carrying  Dividend Redemption Carrying  Dividend Ounces  Amount Value  Amount  Ounces  Amount  Value  Amount 2005 —  $  —  $  —  $6.1   2,380,000  $16.2  $12.5  $1.2 2006 430,558   188.6   167.4   1.5   2,380,000   16.2   12.5   0.5 $188.6  $167.4  $32.4  $25.0