##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from___to___
 Commission file number 1-82
 PHELPS DODGE CORPORATION
  New York
    
    13-1808503(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 One North Central Avenue, Phoenix, AZ
    
    85004-4414(Address of principal executive offices)
    
    (Zip Code)
   Name of each exchangeTitle of each class
    
    on which registeredCommon Shares, $6.25 par value per share
    
    New York Stock Exchange
  þ o
 o þ
 þ o
 þ
  Large Accelerated Filer þ
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
 o þ
    Document
    
    Location in 10-KProxy Statement for 2007 Annual Meeting
    
    Part III




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##### 



i  
 PHELPS DODGE CORPORATION
Annual Report on Form 10-K
 Table of Contents
    
    PagePART I.Items 1. and 2. Business and Properties
    
    
    1Phelps Dodge Mining Company
    
    
    2Properties, Facilities and Production
    
    
    3United States Mines
    
    
    3South American Mines
    
    
    7Africa Deposit
    
    
    9Manufacturing Segment
    
    
    10Primary Molybdenum Segment
    
    
    10Copper Production, by Source, Other Metal Production and Sales Data, and Manufacturing and Sales Production
    
    
    11Phelps Dodge Copper Production Data, by Source
    
    
    13Phelps Dodge Copper Sales Data, by Source
    
    
    15Phelps Dodge Other Metal Production and Sales
    
    
    15Phelps Dodge Manufacturing and Sales Production
    
    
    16Other Mining
    
    
    17Ore Reserves
    
    
    19Average Drill-Hole Spacing at Ore Reserve Properties
    
    
    22Metallurgical Recovery
    
    
    22Mill and Leach Stockpiles
    
    
    22Copper and Molybdenum Prices
    
    
    24Mineralized Material
    
    
    24Sales and Competition
    
    
    25Prices, Supply and Consumption
    
    
    25Costs
    
    
    27Environmental and Other Regulatory Matters
    
    
    27Ownership of Property
    
    
    31Phelps Dodge Industries
    
    
    32Wire and Cable Segment
    
    
    32Discontinued Operations
    
    
    33Labor Matters
    
    
    33Research and Development
    
    
    33Other Environmental Matters
    
    
    33Item 1A. Risk Factors
    
    
    36Item 3. Legal Proceedings
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Executive Officers of Phelps Dodge Corporation
    
    
    44PART II.Item 5. Market for the Registrants Common Equity and Related Stockholder Matters
    
    
    45Item 6. Selected Financial Data
    
    
    46Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsManagements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    49Overview of Phelps Dodge Corporations Businesses and Managements Assessment of Key Factors and Indicators that Could Impact Our Business, Operating Results and Cash Flows
    
    
    49Critical Accounting Policies and Estimates
    
    
    51Results of Phelps Dodge Mining Company
    
    
    61Results of Phelps Dodge Industries
    
    
    80Discontinued Operations
    
    
    80Other Matters Relating to the Consolidated Statement of Income
    
    
    81Changes in Financial Condition; Capitalization
    
    
    84Capital Outlays
    
    
    100Inflation
    
    
    100Dividends and Market Price Ranges
    
    
    100Quarterly Financial Data
    
    
    101Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 8. Financial Statements and Supplementary DataPhelps
Dodge Corporation and Consolidated Subsidiaries Index to Consolidated
Financial Statements
    
    
    103Report of Management on Internal Control Over Financial Reporting
    
    
    103Report of Independent Registered Public Accounting Firm
    
    
    104Consolidated Statement of Income
    
    
    105Consolidated Balance Sheet
    
    
    106Consolidated Statement of Cash Flows
    
    
    107Consolidated Statement of Shareholders Equity
    
    
    108Notes to Consolidated Financial Statements
    
    
    110Financial Data By Geographic Area
    
    
    150Financial Data By Business Segment
    
    
    151Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    48Item 9A. Controls and Procedures
    
    
    48Item 9B. Other Information
    
    
    48PART III.Item 10. Directors and Executive Officers of the Registrant
    
    
    154Item 11. Executive Compensation
    
    
    154Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    154Item 13. Certain Relationships and Related Transactions
    
    
    154Item 14. Principal Accounting Fees and Services
    
    
    154PART IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    154Valuation and Qualifying Accounts and Reserves
    
    
    160Signatures
    
    
    161Glossary of Terms
    
    
    162EX-10.41EX-10.43EX-10.44EX-10.45EX-11EX-12.1EX-12.2EX-21EX-23EX-24EX-31EX-32




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1 PHELPS DODGE CORPORATION
2006 Annual Report on Form 10-K
 
 PART I
 
 Items 1. and 2. Business and Properties
         i.e.




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2     Available Information. http://www.sec.gov.
 http://www.phelpsdodge.com http://www.sec.gov
 ®
 
 PHELPS DODGE MINING COMPANY




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3  
 Properties, Facilities and Production
  
 United States Mines
 
   Arizona Mines
 Morenci




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4  Bagdad
 
        Sierrita




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5     Miami
 
       Safford




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6    New Mexico Mines
 
 Chino
       Cobre
       Tyrone




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7      
 South American Mines
   Candelaria
 
       Ojos del Salado




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8     El Abra
 
       Cerro Verde




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9        
 Africa Deposit
 Tenke Fungurume
 
  oxide-sulfide




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10  
 Manufacturing Segment
     
 Primary Molybdenum Segment




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11            
 Copper
Production, by Source, Other Metal Production and Sales Data, and Manufacturing and Sales Production
  
    
    completion of the run-of-mine leach project at El Abra
with production commencing January 2002;
    
    curtailment of mill throughput at Bagdad to approximately
one-half capacity in January 2002, followed by an increase in
mill throughput to approximately 80 percent in January 2003,
and an increase in production in January 2004, reaching full
capacity in the 2004 second quarter;
    
    curtailment of mill throughput at Sierrita to
approximately one-half capacity in January 2002, followed by
an increase in production in January 2004, reaching full
capacity in the 2004 fourth quarter;
    
    temporary closure of the Miami mine and refinery in
January 2002; partial curtailment of Miamis smelter
throughput in January 2003, followed by restart at full
capacity in the 2004 second quarter; permanent closure of the
Miami refinery in the 2005 second quarter;
    
    curtailment of Chino operations beginning in the 1998
fourth quarter, followed by temporary shut-down of the
concentrator in March 2001 and temporary closure of the mine
and smelter in January 2002; a partial restart of mining for
leach material in April 2003, with a full restart of mining
for leach materials in September 2003; an increase in milling
operations to 80 percent of capacity in the 2004 third
quarter; permanent closure of the Chino smelter in the 2005
second quarter;
    
    partial curtailment at Tyrone beginning in September
2003; Tyrone mining operations were temporarily curtailed in
2004 to focus on stockpile reclamation. A combination of
mining and reclamation activities were conducted in 2005, and
continued through 2006, as Tyrone focuses on site reclamation
while mining its remaining ore reserves. Tyrone SX/EW
operations continue at a declining production rate;
    
    restart of Ojos del Salado underground mining and milling
operations in the 2004 second quarter;
    
    partial curtailment of Henderson operations beginning in
the 2000 second quarter to 18 million pounds, followed by
increases in annual production to approximately 28 million
pounds in 2004, 32 million pounds in 2005 and 37 million
pounds in 2006;
    
    Morenci concentrator, which had been idled since 2001,
was restarted in the 2006 second quarter; and




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12 
    
    completion of the expansion at Cerro Verde Mine in the
2006 fourth quarter. The expansion permits the mining of a
primary sulfide ore body beneath the leachable ore body
currently in production. Once it reaches full production, the
expansion will allow the mine to triple annual production from
approximately 100,000 tons of copper to 300,000 tons. In
addition, the expansion will allow the mine to produce an
average of approximately 3,900 tons of molybdenum per year for
the next 10 years.




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13
 Phelps Dodge Copper Production Data, by Source
 2006
    
    2005
    
    2004
    
    2003
    
    2002Material mined(a)Morenci
    
    
    271,713
    
    
    
    255,887
    
    
    
    234,491
    
    
    
    237,338
    
    
    
    248,505Bagdad
    
    
    63,646
    
    
    
    64,093
    
    
    
    61,194
    
    
    
    48,935
    
    
    
    42,912Sierrita
    
    
    60,633
    
    
    
    63,358
    
    
    
    53,231
    
    
    
    35,525
    
    
    
    23,066Chino
    
    
    63,276
    
    
    
    65,060
    
    
    
    43,443
    
    
    
    12,299
    
    
    
    220Tyrone
    
    
    22,154
    
    
    
    28,840
    
    
    
    1,647
    
    
    
    16,319
    
    
    
    45,515Candelaria
    
    
    107,188
    
    
    
    105,344
    
    
    
    106,585
    
    
    
    108,442
    
    
    
    109,211Ojos del Salado
    
    
    3,190
    
    
    
    2,800
    
    
    
    836
    
    
    
    
    
    
    
    Cerro Verde
    
    
    72,811
    
    
    
    68,620
    
    
    
    75,727
    
    
    
    72,965
    
    
    
    75,982El Abra
    
    
    84,865
    
    
    
    85,140
    
    
    
    83,705
    
    
    
    87,682
    
    
    
    76,831Total material mined
    
    
    749,476
    
    
    
    739,142
    
    
    
    660,859
    
    
    
    619,505
    
    
    
    622,242Less 15% undivided interest at Morenci
    
    
    40,757
    
    
    
    38,383
    
    
    
    35,174
    
    
    
    35,601
    
    
    
    37,276Material mined on a consolidated basis
    
    
    708,719
    
    
    
    700,759
    
    
    
    625,685
    
    
    
    583,904
    
    
    
    584,966Less minority participants shares previously accounted for on a pro rata basis:Chino (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,785
    
    
    
    73Candelaria (c)
    
    
    21,438
    
    
    
    21,069
    
    
    
    21,317
    
    
    
    21,688
    
    
    
    21,842Ojos del Salado (d)
    
    
    638
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    Cerro Verde (e)
    
    
    33,813
    
    
    
    23,810
    
    
    
    13,252
    
    
    
    12,769
    
    
    
    13,297El Abra (f)
    
    
    41,584
    
    
    
    41,719
    
    
    
    41,015
    
    
    
    42,964
    
    
    
    37,647Material mined on a pro rata basis
    
    
    611,246
    
    
    
    614,146
    
    
    
    550,101
    
    
    
    502,698
    
    
    
    512,107Mill ore processedMorenci
    
    
    4,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bagdad
    
    
    27,826
    
    
    
    26,592
    
    
    
    27,157
    
    
    
    26,103
    
    
    
    19,783Sierrita
    
    
    38,439
    
    
    
    39,199
    
    
    
    34,885
    
    
    
    26,654
    
    
    
    21,439Chino
    
    
    9,418
    
    
    
    12,604
    
    
    
    4,895
    
    
    
    
    
    
    
    Cerro Verde
    
    
    834
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Candelaria (g)
    
    
    23,640
    
    
    
    25,064
    
    
    
    27,318
    
    
    
    26,407
    
    
    
    28,507Ojos del Salado
    
    
    3,068
    
    
    
    2,586
    
    
    
    742
    
    
    
    
    
    
    
    Total mill ore processed
    
    
    107,729
    
    
    
    106,045
    
    
    
    94,997
    
    
    
    79,164
    
    
    
    69,729Less 15% undivided interest at Morenci
    
    
    676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mill ore processed on a consolidated basis
    
    
    107,053
    
    
    
    106,045
    
    
    
    94,997
    
    
    
    79,164
    
    
    
    69,729Less minority participants shares previously accounted for on a pro rata basis:Cerro Verde (e)
    
    
    387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Candelaria (c)
    
    
    4,728
    
    
    
    5,013
    
    
    
    5,464
    
    
    
    5,281
    
    
    
    5,701Ojos del Salado (d)
    
    
    614
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    Mill ore processed on a pro rata basis
    
    
    101,324
    
    
    
    101,020
    
    
    
    89,533
    
    
    
    73,883
    
    
    
    64,028Leach ore placed in stockpilesMorenci
    
    
    253,879
    
    
    
    239,052
    
    
    
    224,918
    
    
    
    228,940
    
    
    
    241,955Bagdad (h)
    
    
    28,530
    
    
    
    23,857
    
    
    
    23,627
    
    
    
    
    
    
    
    328Sierrita
    
    
    6,013
    
    
    
    1,888
    
    
    
    1,330
    
    
    
    375
    
    
    
    170Chino (h)
    
    
    19,339
    
    
    
    28,103
    
    
    
    30,799
    
    
    
    11,066
    
    
    
    198Tyrone (h)
    
    
    14,615
    
    
    
    20,328
    
    
    
    18,185
    
    
    
    10,722
    
    
    
    34,835Cerro Verde
    
    
    29,720
    
    
    
    22,839
    
    
    
    22,628
    
    
    
    21,014
    
    
    
    24,096El Abra (h)
    
    
    73,851
    
    
    
    83,620
    
    
    
    71,361
    
    
    
    80,604
    
    
    
    71,224Total leach ore placed in stockpiles
    
    
    425,947
    
    
    
    419,687
    
    
    
    392,848
    
    
    
    352,721
    
    
    
    372,806Less 15% undivided interest at Morenci
    
    
    38,082
    
    
    
    35,858
    
    
    
    33,738
    
    
    
    34,341
    
    
    
    36,293Leach ore placed in stockpiles on a consolidated basis
    
    
    387,865
    
    
    
    383,829
    
    
    
    359,110
    
    
    
    318,380
    
    
    
    336,513Less minority participants shares previously accounted for on a pro rata basis:Chino (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,376
    
    
    
    66Cerro Verde (e)
    
    
    13,802
    
    
    
    8,025
    
    
    
    3,959
    
    
    
    3,677
    
    
    
    4,217El Abra (f)
    
    
    36,187
    
    
    
    40,974
    
    
    
    34,967
    
    
    
    39,496
    
    
    
    34,900Leach ore placed in stockpiles on a pro rata basis
    
    
    337,876
    
    
    
    334,830
    
    
    
    320,184
    
    
    
    271,831
    
    
    
    297,330




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14 Phelps Dodge Copper Production Data, by Source
 2006
    
    2005
    
    2004
    
    2003
    
    2002Grade of ore mined  percent copperMorenci  mill
    
    
    0.56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Morenci  leach
    
    
    0.33
    
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.28
    
    
    
    0.28Bagdad  mill
    
    
    0.33
    
    
    
    0.40
    
    
    
    0.41
    
    
    
    0.43
    
    
    
    0.43Bagdad  leach
    
    
    0.14
    
    
    
    0.10
    
    
    
    0.09
    
    
    
    
    
    
    
    0.29Sierrita  mill
    
    
    0.23
    
    
    
    0.22
    
    
    
    0.25
    
    
    
    0.29
    
    
    
    0.32Sierrita  leach
    
    
    0.18
    
    
    
    0.20
    
    
    
    0.23
    
    
    
    0.26
    
    
    
    0.21Chino  mill
    
    
    0.67
    
    
    
    0.51
    
    
    
    0.81
    
    
    
    
    
    
    
    Chino  leach
    
    
    0.35
    
    
    
    0.26
    
    
    
    0.35
    
    
    
    0.80
    
    
    
    0.29Tyrone  leach
    
    
    0.19
    
    
    
    0.26
    
    
    
    0.17
    
    
    
    0.34
    
    
    
    0.35Candelaria  mill
    
    
    0.87
    
    
    
    0.79
    
    
    
    0.89
    
    
    
    0.97
    
    
    
    0.84Ojos del Salado  mill
    
    
    0.99
    
    
    
    1.35
    
    
    
    1.57
    
    
    
    
    
    
    
    Cerro Verde  mill
    
    
    0.56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cerro Verde  leach
    
    
    0.55
    
    
    
    0.59
    
    
    
    0.66
    
    
    
    0.60
    
    
    
    0.55El Abra  leach
    
    
    0.41
    
    
    
    0.43
    
    
    
    0.47
    
    
    
    0.49
    
    
    
    0.50Average copper grade  mill
    
    
    0.47
    
    
    
    0.46
    
    
    
    0.52
    
    
    
    0.56
    
    
    
    0.56Average copper grade  leach
    
    
    0.34
    
    
    
    0.31
    
    
    
    0.33
    
    
    
    0.37
    
    
    
    0.35Copper productionMorenci:Concentrate
    
    
    16.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Electrowon
    
    
    391.3
    
    
    
    400.0
    
    
    
    420.3
    
    
    
    421.2
    
    
    
    412.7Bagdad:Concentrate
    
    
    58.7
    
    
    
    84.8
    
    
    
    82.1
    
    
    
    82.5
    
    
    
    68.4Electrowon
    
    
    24.0
    
    
    
    15.8
    
    
    
    28.0
    
    
    
    24.5
    
    
    
    15.6Sierrita (i):Concentrate
    
    
    73.6
    
    
    
    71.8
    
    
    
    73.5
    
    
    
    66.3
    
    
    
    60.0Electrowon
    
    
    7.2
    
    
    
    7.5
    
    
    
    4.0
    
    
    
    9.3
    
    
    
    16.2Chino:Concentrate
    
    
    52.9
    
    
    
    50.7
    
    
    
    29.8
    
    
    
    
    
    
    
    Electrowon
    
    
    40.0
    
    
    
    54.1
    
    
    
    61.9
    
    
    
    39.9
    
    
    
    53.8Tyrone:Electrowon
    
    
    31.8
    
    
    
    40.5
    
    
    
    43.1
    
    
    
    56.9
    
    
    
    69.9Miami:Electrowon
    
    
    9.5
    
    
    
    12.3
    
    
    
    9.8
    
    
    
    17.8
    
    
    
    10.5Bisbee:Precipitate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Tohono:Electrowon
    
    
    2.6
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    Candelaria:Concentrate
    
    
    187.0
    
    
    
    179.3
    
    
    
    220.5
    
    
    
    234.5
    
    
    
    219.5Ojos del Salado:Concentrate
    
    
    27.3
    
    
    
    31.1
    
    
    
    10.4
    
    
    
    
    
    
    
    Cerro Verde:Concentrate
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Electrowon
    
    
    106.4
    
    
    
    103.1
    
    
    
    97.6
    
    
    
    96.3
    
    
    
    95.3El Abra:Electrowon
    
    
    241.0
    
    
    
    232.2
    
    
    
    240.3
    
    
    
    249.8
    
    
    
    248.2Manufacturing (j)
    
    
    5.6
    
    
    
    2.3
    
    
    
    2.3
    
    
    
    6.6
    
    
    
    5.4Total copper production
    
    
    1,279.9
    
    
    
    1,288.0
    
    
    
    1,323.6
    
    
    
    1,305.6
    
    
    
    1,275.6Less 15% undivided interest at Morenci
    
    
    61.2
    
    
    
    60.0
    
    
    
    63.0
    
    
    
    63.3
    
    
    
    61.9Copper production on a consolidated basis
    
    
    1,218.7
    
    
    
    1,228.0
    
    
    
    1,260.6
    
    
    
    1,242.3
    
    
    
    1,213.7Less minority participants shares previously accounted for on a pro rata basis:Chino (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.5
    
    
    
    17.9Candelaria (c)
    
    
    37.4
    
    
    
    35.9
    
    
    
    44.1
    
    
    
    46.9
    
    
    
    43.9Ojos del Salado (d)
    
    
    5.4
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Cerro Verde (e)
    
    
    51.5
    
    
    
    35.9
    
    
    
    17.1
    
    
    
    16.8
    
    
    
    16.7El Abra (f)
    
    
    118.1
    
    
    
    113.8
    
    
    
    117.7
    
    
    
    122.4
    
    
    
    121.7Manufacturing (j)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.4Copper production on a pro rata basis
    
    
    1,006.3
    
    
    
    1,042.3
    
    
    
    1,081.7
    
    
    
    1,042.5
    
    
    
    1,012.1




---



##### Table of Contents



15 
 Phelps Dodge Copper Sales Data, by Source
 2006
    
    2005
    
    2004
    
    2003
    
    2002Copper sales:From own mines (k):Morenci
    
    
    407.3
    
    
    
    400.0
    
    
    
    420.3
    
    
    
    421.2
    
    
    
    412.7Bagdad
    
    
    82.6
    
    
    
    104.4
    
    
    
    111.9
    
    
    
    111.0
    
    
    
    92.3Sierrita
    
    
    80.6
    
    
    
    82.8
    
    
    
    79.2
    
    
    
    79.3
    
    
    
    83.8Chino
    
    
    92.7
    
    
    
    104.8
    
    
    
    91.7
    
    
    
    40.7
    
    
    
    53.7Tyrone
    
    
    31.8
    
    
    
    40.5
    
    
    
    43.1
    
    
    
    56.9
    
    
    
    69.9Miami
    
    
    9.5
    
    
    
    14.5
    
    
    
    10.9
    
    
    
    20.0
    
    
    
    15.2Bisbee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Tohono
    
    
    2.6
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    Candelaria
    
    
    185.0
    
    
    
    179.7
    
    
    
    223.2
    
    
    
    234.3
    
    
    
    218.3Ojos del Salado
    
    
    27.5
    
    
    
    30.9
    
    
    
    10.3
    
    
    
    
    
    
    
    Cerro Verde
    
    
    107.1
    
    
    
    102.7
    
    
    
    98.2
    
    
    
    95.6
    
    
    
    94.9El Abra
    
    
    243.3
    
    
    
    233.3
    
    
    
    240.8
    
    
    
    251.8
    
    
    
    254.1Manufacturing (j)
    
    
    5.6
    
    
    
    2.3
    
    
    
    2.3
    
    
    
    6.6
    
    
    
    5.9Total copper sales from own mines
    
    
    1,275.6
    
    
    
    1,298.4
    
    
    
    1,331.9
    
    
    
    1,317.4
    
    
    
    1,300.9Less 15% undivided interest at Morenci
    
    
    61.1
    
    
    
    60.0
    
    
    
    63.0
    
    
    
    63.3
    
    
    
    61.9Copper sales from own mines on a consolidated basis
    
    
    1,214.5
    
    
    
    1,238.4
    
    
    
    1,268.9
    
    
    
    1,254.1
    
    
    
    1,239.0Less minority participants shares previously accounted for on a pro rata basis:Chino (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.3
    
    
    
    17.9Candelaria (c)
    
    
    37.0
    
    
    
    36.0
    
    
    
    44.6
    
    
    
    46.9
    
    
    
    43.7Ojos del Salado (d)
    
    
    5.5
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Cerro Verde (e)
    
    
    49.7
    
    
    
    36.4
    
    
    
    17.2
    
    
    
    16.7
    
    
    
    16.6El Abra (f)
    
    
    119.2
    
    
    
    114.3
    
    
    
    118.0
    
    
    
    123.4
    
    
    
    124.5Manufacturing (j)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.8Copper sales from own mines on a pro rata basis
    
    
    1,003.1
    
    
    
    1,051.6
    
    
    
    1,089.1
    
    
    
    1,052.6
    
    
    
    1,034.5Purchased copper:Candelaria (c)
    
    
    3.1
    
    
    
    23.1
    
    
    
    37.1
    
    
    
    22.1
    
    
    
    35.8El Abra (f)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.3
    
    
    
    56.5Manufacturing (j)
    
    
    364.1
    
    
    
    369.5
    
    
    
    394.0
    
    
    
    274.6
    
    
    
    267.7Sales
    
    
    0.6
    
    
    
    18.1
    
    
    
    1.9
    
    
    
    70.5
    
    
    
    83.0Total purchased copper
    
    
    367.8
    
    
    
    410.7
    
    
    
    433.0
    
    
    
    374.5
    
    
    
    443.0Total copper sales on a consolidated basis (l)
    
    
    1,582.3
    
    
    
    1,649.1
    
    
    
    1,701.9
    
    
    
    N/A
    
    
    
    N/ATotal copper sales on a pro rata basis (l)
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    1,427.1
    
    
    
    1,477.5
 
 Phelps Dodge Other Metal Production and Sales
 2006
    
    2005
    
    2004
    
    2003
    
    2002Gold(thousand ounces)Total production
    
    
    131
    
    
    
    134
    
    
    
    134
    
    
    
    129
    
    
    
    132Less minority participants shares previously accounted for on a pro rata basis:
    
    
    22
    
    
    
    20
    
    
    
    23
    
    
    
    26
    
    
    
    24Net Phelps Dodge share
    
    
    109
    
    
    
    114
    
    
    
    111
    
    
    
    103
    
    
    
    108Sales (k)
    
    
    95
    
    
    
    114
    
    
    
    112
    
    
    
    108
    
    
    
    136Silver(thousand ounces)Total production
    
    
    3,595
    
    
    
    3,090
    
    
    
    3,018
    
    
    
    2,754
    
    
    
    2,582Less minority participants shares previously accounted for on a pro rata basis:
    
    
    420
    
    
    
    250
    
    
    
    284
    
    
    
    265
    
    
    
    225Net Phelps Dodge share
    
    
    3,175
    
    
    
    2,840
    
    
    
    2,734
    
    
    
    2,489
    
    
    
    2,357Sales (k)
    
    
    3,419
    
    
    
    2,866
    
    
    
    3,249
    
    
    
    2,292
    
    
    
    3,317Molybdenum(thousand pounds)Primary Molybdenum  Henderson
    
    
    37,071
    
    
    
    32,201
    
    
    
    27,520
    
    
    
    22,247
    
    
    
    20,517By-product productionSierrita
    
    
    19,974
    
    
    
    18,610
    
    
    
    22,041
    
    
    
    21,167
    
    
    
    14,986Bagdad
    
    
    10,300
    
    
    
    10,952
    
    
    
    7,910
    
    
    
    8,580
    
    
    
    9,462Chino
    
    
    814
    
    
    
    543
    
    
    
    18
    
    
    
    
    
    
    
    Total production
    
    
    68,159
    
    
    
    62,306
    
    
    
    57,489
    
    
    
    51,994
    
    
    
    44,965Sales  Net Phelps Dodge share from own mines (k)
    
    
    68,785
    
    
    
    59,947
    
    
    
    63,108
    
    
    
    54,158
    
    
    
    46,665Purchased molybdenum
    
    
    8,349
    
    
    
    12,830
    
    
    
    12,844
    
    
    
    8,199
    
    
    
    7,393Total sales
    
    
    77,134
    
    
    
    72,777
    
    
    
    75,952
    
    
    
    62,357
    
    
    
    54,058Sulfuric acid(thousand tons)Copper smelters (m)
    
    
    675.8
    
    
    
    726.1
    
    
    
    722.0
    
    
    
    647.6
    
    
    
    748.6Molybdenum (m)
    
    
    155.3
    
    
    
    130.5
    
    
    
    122.5
    
    
    
    116.5
    
    
    
    114.3Total production
    
    
    831.1
    
    
    
    856.6
    
    
    
    844.5
    
    
    
    764.1
    
    
    
    862.9Copper smelters (m)
    
    
    57.3
    
    
    
    98.6
    
    
    
    99.0
    
    
    
    45.5
    
    
    
    14.5Molybdenum (m)
    
    
    157.1
    
    
    
    144.8
    
    
    
    121.4
    
    
    
    117.9
    
    
    
    115.4Total sales
    
    
    214.4
    
    
    
    243.4
    
    
    
    220.4
    
    
    
    163.4
    
    
    
    129.9




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##### Table of Contents



16 Prices
 2006
    
    2005
    
    2004
    
    2003
    
    2002COMEX copper price (n)
    
    $
    3.09
    
    
    
    1.68
    
    
    
    1.29
    
    
    
    0.81
    
    
    
    0.72LME copper price (o)
    
    $
    3.05
    
    
    
    1.67
    
    
    
    1.30
    
    
    
    0.81
    
    
    
    0.71Metals Week molybdenum Dealer Oxide mean price (p)
    
    $
    24.75
    
    
    
    31.73
    
    
    
    16.41
    
    
    
    5.32
    
    
    
    3.77
 
 Phelps Dodge Manufacturing and Sales Production
 2006
    
    2005
    
    2004
    
    2003
    
    2002Smelters(q)Total copper (thousand tons)
    
    
    189.6
    
    
    
    218.9
    
    
    
    214.4
    
    
    
    200.8
    
    
    
    243.8Less minority participants shares previously accounted for on a pro rata basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5Net Phelps Dodge share
    
    
    189.6
    
    
    
    218.9
    
    
    
    214.4
    
    
    
    200.8
    
    
    
    243.3Refineries(r)Copper (thousand tons)
    
    
    281.8
    
    
    
    295.0
    
    
    
    308.4
    
    
    
    284.6
    
    
    
    319.6Gold (thousand ounces) (s)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79.0Silver (thousand ounces) (s)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,786.0Rod(t)Total copper (thousand tons)
    
    
    981.8
    
    
    
    1,008.1
    
    
    
    1,014.6
    
    
    
    825.8
    
    
    
    850.6
 
 Footnotes
to tables on pages 13 through 16:
 (a)
    
    Included material mined for leaching operations, excluded material mined from stockpiles.(b)
    
    Reflected a one-third partnership interest in Chino Mines Company from January 1, 2002, to December 18, 2003 (minority interest acquired by PDMC
on December 19, 2003).(c)
    
    Reflected a 20 percent partnership interest in Candelaria.(d)
    
    Reflected a 20 percent partnership interest in Ojos del Salado beginning December 23, 2005.(e)
    
    Reflected a 17.5 percent equity interest in Cerro Verde through May 31, 2005, and a 46.4 percent equity interest beginning June 1, 2005.(f)
    
    Reflected a 49 percent partnership interest in El Abra.(g)
    
    Included mill ore from stockpiles.(h)
    
    Leach ore placed in the stockpiles included previously considered waste material that is now being leached.(i)
    
    Excluded 8.3 million pounds of copper sulfate production, which has a copper content of approximately 25 percent of an electrowon copper cathode.(j)
    
    Included smelter production from custom receipts and flux as well as tolling gains or losses.(k)
    
    Excluded sales of purchased copper, molybdenum, silver and gold.(l)
    
    Beginning in 2004, reflected full consolidation of El Abra and Candelaria, 2003 and prior reflected El Abra and Candelaria on a pro rata basis
(51 percent and 80 percent, respectively).(m)
    
    Sulfuric acid production resulted from smelter and molybdenum air quality control operations; sales do not include internal usage.(n)
    
    New York Commodity Exchange annual average spot price per pound  cathodes.(o)
    
    London Metal Exchange annual average spot price per pound  cathodes.(p)
    
    Annual Metals Weekmolybdenum Dealer Oxide mean price per pound  as quoted in Platts Metals Week.(q)
    
    Included production from purchased concentrates and copper smelted for others on a toll basis.(r)
    
    Included production from purchased material and copper refined for others on a toll basis.(s)
    
    El Paso closed its precious metals processing facility in the 2002 fourth quarter.(t)
    
    Included rod, wire, oxygen-free billets/cakes, scrap and other shapes.




---



##### Table of Contents



17 
 Other Mining
  Exploration




---



##### Table of Contents



18   Process Technology
  
    
    a large-diameter, column-leach facility for testing
run-of-mine material, which is capable of processing up to
approximately 600 tons of ore annually;
    
    a continuous SX/EW test facility capable of producing
approximately 1.5 tons of copper cathode per day;
    
    a small-diameter, column-leach facility with a capacity
of about 250 individual tests per year for crushed material;
    
    a metallurgical laboratory for the development of
biological leaching processes and enhancements, and other
biological applications;
    
    a demonstration facility for production of new copper
products; and
    
    a state-of-the-art material characterization laboratory
with advanced mineralogy, analytical chemistry and
metallography capabilities.
  
    
    The high-temperature, concentrate pressure-leaching
demonstration plant at the Bagdad mine continued to operate
throughout 2006. The high temperature (i.e.,225°C) mode of
operation provides the Bagdad operation with a significant
portion of the sulfuric acid required for its low-grade
stockpile leaching operations. In 2005, this facility was used
to test and demonstrate medium-temperature, pressure-leaching
and direct-electrowinning technology for use at Morenci and
other potential future applications.
    
    The design and construction of a concentrate-leaching
facility at Morenci was advanced on schedule during 2006. This
facility is being installed in conjunction with a restart of
the Morenci concentrator to process chalcopyrite-containing
ores from Western Copper, Garfield and other areas of the
mine. The concentrate-leaching facility will utilize Phelps
Dodges proprietary medium-temperature, pressure-leaching and
direct-electrowinning technology that was demonstrated at
Bagdad in 2005. The facility is expected to be in operation by
mid-2007 with copper production projected to be approximately
150 million pounds per year. To date, approximately $128
million (PDs share) has been spent for the concentrate-leach,
direct-electrowinning facility and restart of the
concentrator, of which approximately $112 million (PDs share)
was spent during 2006.
    
    Construction and commissioning of a Central Analytical
Service Center (CASC) to provide routine analytical services
for PDMCs operations in Arizona and New Mexico was completed
in early 2006. The facility, located in Safford, Arizona,
replaces most analytical functions and capabilities at Phelps
Dodge mining operations in Arizona and New Mexico, and
provides high-quality, timely and cost-effective analytical
services to PDMCs operations.
    
    Proprietary technology for heap and stockpile leaching of
low-grade chalcopyrite ores was advanced, including the
continued operation of a large-scale (27-million-ton)
demonstration plant at Bagdad and the construction of a large,
engineered, stockpile leaching operation at Morenci.
    
    The development of cost-effective, heap-leaching options
for primary sulfide material at El Abra continued to be
advanced during the year. Biological heap leaching is expected
to provide an alternative technology to conventional milling,
flotation and smelting of bornite-rich primary sulfide ore at
El Abra starting in 2010.
    
    Investigation and commercial demonstration of alternative
technologies to reduce the cost of copper electrowinning
continued during 2006.
    
    The commercial demonstration of proprietary alternative
copper products and production techniques, specifically
electrowon copper powder, was advanced during 2006.
    
    We continued the operation and optimization of a facility
at Bisbee, Arizona, using technology owned by BioteQ
(Vancouver, Canada) to recover copper as a sulfide precipitate
from low-grade, copper-bearing solution.




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##### Table of Contents



19  Other Ancillary Operations
  Mining Investments
     
 Ore Reserves
   As of December 31, 2006Crushed or
    
    ROMProperty
    
    Mill %
    
    Agitation Leach %
    
    Leach %Morenci
    
    
    0.31
    
    
    
    0.25
    
    
    
    0.03Candelaria
    
    
    0.25
    
    
    
    N/A
    
    
    
    N/AEl Abra
    
    
    N/A
    
    
    
    0.26
    
    
    
    0.05Miami
    
    
    N/A
    
    
    
    N/A
    
    
    
    0.04Ojos del Salado
    
    
    0.85
    
    
    
    N/A
    
    
    
    N/ATyrone
    
    
    N/A
    
    
    
    N/A
    
    
    
    0.07Bagdad
    
    
    0.19
    *
    
    
    N/A
    
    
    
    0.07Cerro Verde
    
    
    0.23
    
    
    
    0.15
    
    
    
    0.10Chino
    
    
    0.33
    
    
    
    N/A
    
    
    
    0.10Sierrita
    
    
    0.23
    *
    
    
    N/A
    
    
    
    0.07Cobre
    
    
    N/A
    
    
    
    N/A
    
    
    
    0.07Safford
    
    
    N/A
    
    
    
    0.12
    
    
    
    0.08Tenke Fungurume
    
    
    N/A
    
    
    
    1.04
    **
    
    
    N/APrimary Molybdenum PropertiesHenderson
    
    
    0.15
    
    
    
    N/A
    
    
    
    N/AClimax
    
    
    0.08
    
    
    
    N/A
    
    
    
    N/A
 
 *
    
    Equivalent copper cutoffs based on molybdenum price of $5.00 per pound.**
    
    Equivalent copper cutoff based on cobalt price of $12.00 per pound.




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##### Table of Contents



Total Ore Reserves Estimated at December 31, 2006 (1)Leachable Reserves
    
    PhelpsMillable Reserves
    
    Crushed Leach
    
    Run-of-Mine (ROM)
    
    DodgeMillion
    
    %
    
    %
    
    Million
    
    %
    
    Million
    
    %
    
    InterestTons
    
    Copper
    
    Moly
    
    Tons
    
    Copper
    
    Tons
    
    Copper
    
    (%)Developed PropertiesCopper PropertiesMorenci (2)Proven Reserves
    
    
    267.5
    
    
    
    0.52
    
    
    
    
    
    
    
    495.3
    
    
    
    0.58
    
    
    
    2,388.6
    
    
    
    0.19Probable Reserves
    
    
    2.9
    
    
    
    0.64
    
    
    
    
    
    
    
    22.5
    
    
    
    0.50
    
    
    
    108.3
    
    
    
    0.21270.4
    
    
    
    0.52
    
    
    
    
    
    
    
    517.8
    
    
    
    0.57
    
    
    
    2,496.9
    
    
    
    0.19
    
    
    
    85.0Candelaria (3) & (4)Proven Reserves
    
    
    283.0
    
    
    
    0.64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable Reserves
    
    
    17.8
    
    
    
    0.72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300.8
    
    
    
    0.64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.0El Abra (5)Proven Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517.3
    
    
    
    0.54
    
    
    
    416.1
    
    
    
    0.26Probable Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159.1
    
    
    
    0.55
    
    
    
    82.2
    
    
    
    0.34
    
    
    
    
    
    
    
    
    
    
    
    676.4
    
    
    
    0.54
    
    
    
    498.3
    
    
    
    0.28
    
    
    
    51.0Miami (6)Proven Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93.0
    
    
    
    0.41Probable Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    0.30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95.7
    
    
    
    0.41
    
    
    
    100.0Ojos del Salado (3)Proven Reserves
    
    
    7.2
    
    
    
    1.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable Reserves
    
    
    4.8
    
    
    
    1.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.0
    
    
    
    1.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.0Tyrone (7)Proven Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.9
    
    
    
    0.36Probable Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.7
    
    
    
    0.23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94.6
    
    
    
    0.34
    
    
    
    100.0Copper and Molybdenum PropertiesBagdad (7)Proven Reserves
    
    
    517.4
    
    
    
    0.36
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    12.2
    
    
    
    0.32Probable Reserves
    
    
    27.8
    
    
    
    0.29
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    0.28545.2
    
    
    
    0.35
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    14.0
    
    
    
    0.32
    
    
    
    100.0Cerro Verde (8)Proven Reserves
    
    
    480.7
    
    
    
    0.54
    
    
    
    0.02
    
    
    
    151.2
    
    
    
    0.60
    
    
    
    37.5
    
    
    
    0.30Probable Reserves
    
    
    1,070.4
    
    
    
    0.44
    
    
    
    0.01
    
    
    
    135.6
    
    
    
    0.43
    
    
    
    44.2
    
    
    
    0.221,551.1
    
    
    
    0.47
    
    
    
    0.02
    
    
    
    286.8
    
    
    
    0.52
    
    
    
    81.7
    
    
    
    0.26
    
    
    
    53.56ChinoProven Reserves
    
    
    53.9
    
    
    
    0.68
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    120.5
    
    
    
    0.43Probable Reserves
    
    
    10.5
    
    
    
    0.69
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    20.4
    
    
    
    0.3564.4
    
    
    
    0.68
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    140.9
    
    
    
    0.42
    
    
    
    100.0SierritaProven Reserves
    
    
    927.4
    
    
    
    0.26
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    9.9
    
    
    
    0.18Probable Reserves
    
    
    91.6
    
    
    
    0.24
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    0.181,019.0
    
    
    
    0.26
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    15.1
    
    
    
    0.18
    
    
    
    100.0Primary Molybdenum PropertyHendersonProven Reserves
    
    
    136.2
    
    
    
    
    
    
    
    0.21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable Reserves
    
    
    5.6
    
    
    
    
    
    
    
    0.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141.8
    
    
    
    
    
    
    
    0.21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Undeveloped Ore Reserves 
require substantial capital
investments to bring into productionCopper PropertiesCobre (6)Proven Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81.8
    
    
    
    0.41Probable Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3
    
    
    
    0.33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85.1
    
    
    
    0.40
    
    
    
    100.0Safford (9)Proven Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285.3
    
    
    
    0.46
    
    
    
    45.7
    
    
    
    0.21Probable Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194.2
    
    
    
    0.31
    
    
    
    90.3
    
    
    
    0.20
    
    
    
    
    
    
    
    
    
    
    
    479.5
    
    
    
    0.40
    
    
    
    136.0
    
    
    
    0.20
    
    
    
    100.0




---



##### Table of Contents



21 Total Ore Reserves Estimated at December 31, 2006 (continued) (1)Leachable Reserves
    
    PhelpsMillable Reserves
    
    Crushed Leach
    
    Run-of-Mine (ROM)
    
    DodgeMillion
    
    %
    
    %
    
    Million
    
    %
    
    Million
    
    %
    
    InterestTons
    
    Copper
    
    Moly
    
    Tons
    
    Copper
    
    Tons
    
    Copper
    
    (%)Undeveloped Ore Reserves  require substantial capital
investments to bring into productionPrimary Molybdenum PropertyClimax (6) & (10)Proven Reserves
    
    
    64.2
    
    
    
    
    
    
    
    0.22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable Reserves
    
    
    92.2
    
    
    
    
    
    
    
    0.16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156.4
    
    
    
    
    
    
    
    0.19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0
 PhelpsAgitation Leach Reserves
    
    DodgeMillion
    
    %
    
    %
    
    InterestTons
    
    Copper
    
    Cobalt
    
    (%)Copper and Cobalt PropertyTenke Fungurume (11)Proven Reserves
    
    
    24.2
    
    
    
    2.24
    
    
    
    0.30Probable Reserves
    
    
    89.7
    
    
    
    2.05
    
    
    
    0.31113.9
    
    
    
    2.09
    
    
    
    0.31
    
    
    
    57.75
 Total Ore Reserves Estimated at December 31, 2005 (1)Leachable Reserves
    
    PhelpsMillable Reserves
    
    Crushed Leach
    
    Run-of-Mine (ROM)
    
    DodgeMillion
    
    %
    
    %
    
    Million
    
    %
    
    Million
    
    %
    
    InterestTons
    
    Copper
    
    Moly
    
    Tons
    
    Copper
    
    Tons
    
    Copper
    
    (%)Developed Ore ReservesCopper PropertiesMorenci
    
    
    247.6
    
    
    
    0.49
    
    
    
    
    
    
    
    587.5
    
    
    
    0.54
    
    
    
    2,490.7
    
    
    
    0.19
    
    
    
    85.0Candelaria
    
    
    339.0
    
    
    
    0.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.0El Abra
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227.7
    
    
    
    0.47
    
    
    
    226.4
    
    
    
    0.32
    
    
    
    51.0Miami
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112.1
    
    
    
    0.37
    
    
    
    100.0Ojos del Salado
    
    
    15.1
    
    
    
    1.33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.0Tyrone
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49.3
    
    
    
    0.29
    
    
    
    100.0Copper and Molybdenum PropertiesBagdad
    
    
    618.9
    
    
    
    0.35
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    16.3
    
    
    
    0.31
    
    
    
    100.0Cerro Verde
    
    
    1,392.0
    
    
    
    0.49
    
    
    
    0.02
    
    
    
    268.1
    
    
    
    0.50
    
    
    
    97.1
    
    
    
    0.29
    
    
    
    53.56Chino
    
    
    72.6
    
    
    
    0.70
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    156.0
    
    
    
    0.40
    
    
    
    100.0Sierrita
    
    
    1,061.6
    
    
    
    0.26
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    26.1
    
    
    
    0.18
    
    
    
    100.0Primary Molybdenum PropertyHenderson
    
    
    150.7
    
    
    
    
    
    
    
    0.21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Undeveloped
Ore Reserves  require
substantial capital investments
to bring into productionCopper PropertiesCobre
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110.3
    
    
    
    0.35
    
    
    
    100.0Safford
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455.3
    
    
    
    0.40
    
    
    
    82.7
    
    
    
    0.21
    
    
    
    100.0Primary Molybdenum PropertyClimax
    
    
    156.4
    
    
    
    
    
    
    
    0.19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0
 
 (1)
    
    Total ore reserves estimated (i) are presented on a 100% basis (i.e., include 100% Candelaria, El Abra, Morenci, Ojos del Salado, Cerro Verde and Tenke
Fungurume), (ii) include only in-situ tonnages and (iii) exclude stockpiled ores.(2)
    
    Morenci ore reserves increased with the inclusion of additional ore reserves in the Garfield and Shannon areas.(3)
    
    Candelaria and Ojos del Salado deposits also contained 0.004 ounces and 0.010 ounces of gold per ton, respectively.(4)
    
    Candelaria ore reserves included 6.3 million tons of underground ore reserves from the Candelaria Norte area. Candelaria recoverable pounds decreased
due to higher costs and a new resource model that lowered copper grades.(5)
    
    El Abra amounts include oxide leach and new sulfide leach reserves at December 31, 2006, which were based on a recently updated feasibility study.(6)
    
    Miami and Climax properties have been on care-and-maintenance status with no mining taking place; Cobre had limited activity to improve and establish
access to mining areas.(7)
    
    Bagdad and Tyrone ore reserves reflected new pit designs based on updated slope and economic parameters.(8)
    
    Cerro Verde millable ore reserves reflect its recently completed mill project.(9)
    
    Safford leach deposit is in development and is expected to be in production during the first half of 2008.(10)
    
    Significant capital investment is required prior to production from these molybdenum reserves.(11)
    
    Tenke Fungurume ore reserves were included based on a recently updated feasibility study.




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##### Table of Contents



22 
 Average Drill-Hole Spacing at Ore Reserve Properties
  As of December 31, 2006Proven
    
    Probable(average spacing-feet)
    
    (average spacing-feet)Property
    
    
    Mill
    
    
    
    Leach
    
    
    Mill
    
    
    
    LeachMorenci
    
    
    283
    
    
    
    283
    
    
    
    400
    
    
    
    400Candelaria
    
    
    115
    
    
    
    N/A
    
    
    
    230
    
    
    
    N/AEl Abra
    
    
    N/A
    
    
    
    233
    
    
    
    N/A
    
    
    
    328Miami
    
    
    N/A
    
    
    
    200
    
    
    
    N/A
    
    
    
    300Ojos del Salado
    
    
    82
    
    
    
    N/A
    
    
    
    164
    
    
    
    N/ATyrone
    
    
    N/A
    
    
    
    283
    
    
    
    N/A
    
    
    
    283Bagdad
    
    
    190
    
    
    
    81
    
    
    
    441
    
    
    
    323Cerro Verde
    
    
    164
    
    
    
    164
    
    
    
    328
    
    
    
    328Chino
    
    
    141
    
    
    
    200
    
    
    
    200
    
    
    
    283Sierrita
    
    
    223
    
    
    
    144
    
    
    
    347
    
    
    
    242Cobre
    
    
    150
    
    
    
    200
    
    
    
    200
    
    
    
    300Safford
    
    
    N/A
    
    
    
    200
    
    
    
    N/A
    
    
    
    400Tenke Fungurume
    
    
    N/A
    
    
    
    164
    
    
    
    N/A
    
    
    
    328Henderson
    
    
    65
    
    
    
    N/A
    
    
    
    290
    
    
    
    N/AClimax
    
    
    200
    
    
    
    N/A
    
    
    
    200
    
    
    
    N/A
 
 Metallurgical Recovery
  As of December 31, 2006Copper
    
    MolybdenumProperty
    
    Mill % (a)
    
    Leach % (b)
    
    Mill % (c)Copper and Copper/Molybdenum PropertiesMorenci
    
    
    78.8
    
    
    
    55.1
    
    
    
    N/ACandelaria
    
    
    91.1
    
    
    
    N/A
    
    
    
    N/AEl Abra (d)
    
    
    N/A
    
    
    
    53.7
    
    
    
    N/AMiami
    
    
    N/A
    
    
    
    61.6
    
    
    
    N/AOjos del Salado
    
    
    89.8
    
    
    
    N/A
    
    
    
    N/ATyrone
    
    
    N/A
    
    
    
    64.3
    
    
    
    N/ABagdad
    
    
    86.1
    
    
    
    44.9
    
    
    
    75.6Cerro Verde
    
    
    86.3
    
    
    
    74.2
    
    
    
    53.9Chino
    
    
    77.5
    
    
    
    65.3
    
    
    
    25.0Sierrita
    
    
    83.6
    
    
    
    60.1
    
    
    
    81.1Cobre
    
    
    N/A
    
    
    
    61.9
    
    
    
    N/ASafford
    
    
    N/A
    
    
    
    61.7
    
    
    
    N/APrimary Molybdenum PropertiesHenderson
    
    
    N/A
    
    
    
    N/A
    
    
    
    86.8Climax
    
    
    N/A
    
    
    
    N/A
    
    
    
    85.1
 Copper
    
    
    CobaltAgitation
    
    
    AgitationProperty
    
    
    
    
    Leach %
    
    
    Leach %Copper/Cobalt PropertyTenke Fungurume (e)
    
    
    
    
    
    
    95.0
    
    
    
    83.5
 
 (a)
    
    Mill recoveries include expected mill and smelter recoveries and an allowance
for concentrate transportation losses.(b)
    
    Leach recoveries are the expected total recoveries over multiple leach cycles.(c)
    
    Molybdenum recoveries include mill recoveries and roaster deductions.(d)
    
    El Abra average leach recoveries include both oxides and sulfide ores.(e)
    
    Tenke Fungurume long-term cobalt metal recoveries are estimated to average 83.3 percent based
on refined cobalt metal production. Cobalt recoveries in hydroxide form are estimated to
average 85.0 percent. 
 Mill and Leach Stockpiles
  (in million tons)
    
    As of December 31, 2006ContainedStockpile
    
    Copper
    
    Recovery
    
    RecoverableMaterial
    
    (%)*
    
    (%)
    
    CopperMill stockpiles:100% basis
    
    
    111
    
    
    
    0.47
    
    
    
    82.5
    
    
    
    0.4Consolidated basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4Phelps Dodge pro rata basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Leach stockpiles:100% basis
    
    
    9,100
    
    
    
    0.27
    
    
    
    5.6
    
    
    
    1.4Consolidated basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4Phelps Dodge pro rata basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
 
  (in million tons)
    
    As of December 31, 2005ContainedStockpile
    
    Copper
    
    Recovery
    
    RecoverableMaterial
    
    (%)*
    
    (%)
    
    CopperMill stockpiles:100% basis
    
    
    101
    
    
    
    0.47
    
    
    
    83.0
    
    
    
    0.4Consolidated basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4Phelps Dodge pro rata basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Leach stockpiles:100% basis
    
    
    8,737
    
    
    
    0.27
    
    
    
    5.8
    
    
    
    1.4Consolidated basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.3Phelps Dodge pro rata basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
 
   Mill Stockpiles




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##### Table of Contents



23  Leach Stockpiles
      December 31,2006
    
    2005Mill stockpiles:Candelaria
    
    
    0.3
    
    
    
    0.3Cerro Verde
    
    
    0.1
    
    
    
    0.10.4
    
    
    
    0.4Leach stockpiles:Morenci
    
    
    0.3
    
    
    
    0.2El Abra
    
    
    0.1
    
    
    
    0.1Tyrone
    
    
    0.1
    
    
    
    0.1Bagdad
    
    
    0.1
    
    
    
    0.1Cerro Verde
    
    
    0.1
    
    
    
    0.1Chino
    
    
    0.6
    
    
    
    0.6Sierrita
    
    
    0.1
    
    
    
    0.21.4
    
    
    
    1.4Total (100% basis)
    
    
    1.8
    
    
    
    1.8Consolidated basis
    
    
    1.8
    
    
    
    1.7Phelps Dodge pro rata basis
    
    
    1.5
    
    
    
    1.5
   2006
    
    2005
    
    2004
    
    2003
    
    2002Milling reserves on a pro rata basis
(billion tons) (a)
    
    
    3.2
    
    
    
    3.3
    
    
    
    4.2
    
    
    
    3.5
    
    
    
    3.4Leaching reserves on a pro rata basis
(billion tons) (a)
    
    
    4.5
    
    
    
    4.1
    
    
    
    4.5
    
    
    
    4.0
    
    
    
    4.3Commercially recoverable copper
(million tons):Ore reserves
    
    
    19.5
    
    
    
    17.7
    
    
    
    23.2
    
    
    
    19.5
    
    
    
    19.6Stockpiles and in-process inventories
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.4Total Phelps Dodge pro rata basis
    
    
    21.0
    
    
    
    19.2
    
    
    
    24.8
    
    
    
    21.1
    
    
    
    21.0Total consolidated basis (b)
    
    
    27.4
    
    
    
    23.7
    
    
    
    26.1
    
    
    
    N/A
    
    
    
    N/ACommercially recoverable molybdenum
(billion pounds)Phelps Dodge pro rata basis
    
    
    1.8
    
    
    
    1.9
    
    
    
    2.1
    
    
    
    2.0
    
    
    
    2.1Total consolidated basis
    
    
    2.0
    
    
    
    2.0
    
    
    
    2.1
    
    
    
    2.0
    
    
    
    2.1Commercially recoverable cobalt
(billion pounds)Phelps Dodge pro rata basis
    
    
    0.3
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal consolidated basis
    
    
    0.6
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 
 (a)
    
    Milling and leaching reserves on a 100 percent basis would have been 4.1 and 5.7 billion
tons, respectively, as of December 31, 2006 and 4.1 and 4.9 billion tons, respectively, as of
December 31, 2005, if El Abra, Candelaria, Cerro Verde, Morenci, Ojos del Salado and Tenke
were reflected on a 100 percent basis.(b)
    
    Commercially recoverable copper on a 100 percent basis would have been 28.2 and 24.5 million
tons of copper, respectively, as of December 31, 2006 and 2005, if Morenci was reflected on a
100 percent basis.




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##### Table of Contents



Copper and Molybdenum Prices
 Metals
Week
 Cents per pound
    
    Dollars per poundof Copper
    
    of Molybdenum Dealer OxideCOMEX
    
    Platts Metals WeekYear
    
    High
    
    Low
    
    Average
    
    High
    
    Low
    
    Mean1992
    
    
    116
    
    
    
    93
    
    
    
    103
    
    
    
    2.44
    
    
    
    1.82
    
    
    
    2.211993
    
    
    107
    
    
    
    72
    
    
    
    85
    
    
    
    2.80
    
    
    
    1.82
    
    
    
    2.321994
    
    
    140
    
    
    
    78
    
    
    
    107
    
    
    
    17.00
    
    
    
    2.68
    
    
    
    4.511995
    
    
    146
    
    
    
    121
    
    
    
    135
    
    
    
    17.50
    
    
    
    3.90
    
    
    
    8.081996
    
    
    131
    
    
    
    86
    
    
    
    106
    
    
    
    5.50
    
    
    
    2.90
    
    
    
    3.791997
    
    
    123
    
    
    
    76
    
    
    
    104
    
    
    
    4.90
    
    
    
    3.52
    
    
    
    4.311998
    
    
    86
    
    
    
    64
    
    
    
    75
    
    
    
    4.60
    
    
    
    2.00
    
    
    
    3.411999
    
    
    85
    
    
    
    61
    
    
    
    72
    
    
    
    2.90
    
    
    
    2.48
    
    
    
    2.652000
    
    
    93
    
    
    
    74
    
    
    
    84
    
    
    
    2.98
    
    
    
    2.15
    
    
    
    2.562001
    
    
    87
    
    
    
    60
    
    
    
    73
    
    
    
    2.65
    
    
    
    2.15
    
    
    
    2.362002
    
    
    78
    
    
    
    65
    
    
    
    72
    
    
    
    8.30
    
    
    
    2.40
    
    
    
    3.772003
    
    
    104
    
    
    
    71
    
    
    
    81
    
    
    
    7.80
    
    
    
    3.15
    
    
    
    5.322004
    
    
    154
    
    
    
    106
    
    
    
    129
    
    
    
    33.25
    
    
    
    7.20
    
    
    
    16.412005
    
    
    228
    
    
    
    140
    
    
    
    168
    
    
    
    40.00
    
    
    
    26.00
    
    
    
    31.732006
    
    
    408
    
    
    
    213
    
    
    
    309
    
    
    
    28.40
    
    
    
    20.50
    
    
    
    24.75
 Metals Week
 Metals
Week
 Metals Week
 
 Mineralized Material
  Milling Material
    
    
    Leaching Material
    
    
    Phelps DodgeProperty
    
    Location
    
    
    Millions of Tons
    
    
    Percent Copper
    
    
    Percent Molybdenum
    
    
    Percent Cobalt
    
    
    Millions of Tons
    
    
    Percent Copper
    
    
    Percent Cobalt
    
    
    Interest %Operating Copper
PropertiesMorenci
    
    Arizona
    
    
    255
    
    
    
    0.33
    
    
    
    
    
    
    
    
    
    
    
    477
    
    
    
    0.29
    
    
    
    
    
    
    
    85.0Candelaria (1)
    
    Chile
    
    
    61
    
    
    
    0.53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.0El Abra
    
    Chile
    
    
    280
    
    
    
    0.54
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    0.25
    
    
    
    
    
    
    
    51.0Tyrone
    
    New Mexico
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    0.33
    
    
    
    
    
    
    
    100.0Operating Copper/Molybdenum
PropertiesBagdad
    
    Arizona
    
    
    830
    
    
    
    0.32
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Cerro Verde
    
    Peru
    
    
    624
    
    
    
    0.36
    
    
    
    0.01
    
    
    
    
    
    
    
    8
    
    
    
    0.46
    
    
    
    
    
    
    
    53.56Sierrita
    
    Arizona
    
    
    2,670
    
    
    
    0.21
    
    
    
    0.02
    
    
    
    
    
    
    
    34
    
    
    
    0.16
    
    
    
    
    
    
    
    100.0Non-Operating
Copper
PropertiesAjo
    
    Arizona
    
    
    205
    
    
    
    0.50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Cobre
    
    New Mexico
    
    
    3
    
    
    
    0.94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Cochise/Bisbee
    
    Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    276
    
    
    
    0.47
    
    
    
    
    
    
    
    100.0Miami
    
    Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    0.39
    
    
    
    
    
    
    
    100.0Safford
    
    Arizona
    
    
    233
    
    
    
    0.73
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    0.10
    
    
    
    
    
    
    
    100.0Sanchez
    
    Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    0.29
    
    
    
    
    
    
    
    100.0Lone Star
    
    Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,600
    
    
    
    0.38
    
    
    
    
    
    
    
    100.0Tohono
    
    Arizona
    
    
    276
    
    
    
    0.70
    
    
    
    
    
    
    
    
    
    
    
    404
    
    
    
    0.63
    
    
    
    
    
    
    
    100.0Non-Operating Copper/Cobalt
PropertyTenke Fungurume
    
    Dem. Rep. Congo
    
    
    82
    
    
    
    3.11
    
    
    
    
    
    
    
    0.28
    
    
    
    28
    
    
    
    3.05
    
    
    
    0.35
    
    
    
    57.75Primary
Molybdenum
PropertiesHenderson
    
    Colorado
    
    
    316
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Climax Underground
    
    Colorado
    
    
    87
    
    
    
    
    
    
    
    0.25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0Climax Open Pit
    
    Colorado
    
    
    327
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0
 
 (1)
    
    Candelaria consists of both open-pit and underground mines. The stated tonnage also
contains 0.004 ounces of gold per ton.




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##### Table of Contents



25 
 Sales and Competition
 U.S. Mining Operations
  South American Mines
    Worldwide Copper Mining Operations
     Primary Molybdenum Segment
   
 Prices, Supply and Consumption
 Worldwide Copper Mining Operations




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##### Table of Contents



26        Primary Molybdenum Segment
   Metals Week i.e. Metals Week Ryans Notes Metal Bulletin




---



##### Table of Contents



27 
 Costs
 Worldwide Copper Mining Operations
        
 Environmental and Other Regulatory Matters
 U.S. Mining Operations
 Significant Federal Environmental Programs




---



##### Table of Contents



28        Significant Arizona Environmental and Reclamation
Programs




---



##### Table of Contents



29        Significant New Mexico Environmental and Reclamation
Programs




---



##### Table of Contents



30     Significant Colorado Reclamation Programs
  Avian Mortalities and Natural Resources Damage Claims




---



##### Table of Contents



31 Significant International Closure and Reclamation
Programs
 Sociedad Minera Cerro Verde S.A.A.
   Other
  Other
     
 Ownership of Property
 U.S. Mining Operations
  South American Mining




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##### Table of Contents



32 African Deposit
  Primary Molybdenum Operations
  
 PHELPS DODGE INDUSTRIES
   
 Wire and Cable Segment
     Competition and Markets
    Raw Materials and Energy Supplies
     Ownership of Property




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##### Table of Contents



33 
 Discontinued Operations
   Competition and Markets
  Raw Materials and Energy Supplies
  Ownership of Property
  
 LABOR MATTERS
  Phelps Dodge Mining CompanyNumber ofUnion-RepresentedLocation
    
    Number of Unions
    
    Employees
    
    Expiration DateEl Abra  Chile
    
    
    2
    
    
    
    455
    
    
    Oct-08Candelaria  Chile
    
    
    2
    
    
    
    506
    
    
    Oct-09Aurex  Chile
    
    
    1
    
    
    
    35
    
    
    Feb-10Cerro Verde  Peru
    
    
    1
    
    
    
    460
    
    
    Dec-08Chino  New Mexico
    
    
    1
    
    
    
    275
    
    
    Nov-09Rotterdam  The
Netherlands
    
    
    2
    
    
    
    41
    
    
    Mar-08Stowmarket  United
Kingdom
    
    
    1
    
    
    
    50
    
    
    May-08Tenke Fungurume
 DRC
    
    
    2
    
    
    
    522
    
    
    Mar-08Bayway
 New Jersey
    
    
    1
    
    
    
    48
    
    
    Apr-07
  Phelps Dodge Wire and Cable OperationsNumber ofUnion-RepresentedLocation
    
    Number of Unions
    
    Employees
    
    Expiration DateLuanshya, Zambia
    
    
    1
    
    
    
    72
    
    
    Jun-07Peços de
Caldas, Brazil
    
    
    2
    
    
    
    471
    
    
    Aug-07 & Oct-07Valencia, Venezuela
    
    
    1
    
    
    
    380
    
    
    Jul-09Santiago, Chile
    
    
    2
    
    
    
    166
    
    
    Sep-10
 
 RESEARCH AND DEVELOPMENT
  
 OTHER ENVIRONMENTAL MATTERS




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##### Table of Contents



34   Pinal Creek Site
   Chino AOC
  Tohono Tailing and Evaporation Pond Remediation
   Anniston Lead and PCB Sites
 de minimis




---



##### Table of Contents



35  Laurel Hill Site
    Other




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##### Table of Contents



36   
 Item 1A. Risk Factors
 Copper and Molybdenum Price Volatility May Reduce Our Profits and Cash Flow
     Metals Week
 Our Copper Price Protection Programs May Cause Significant Volatility in Financial Performance




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##### Table of Contents



37  (Units in millions)
    
    Open Derivative Positions
    
    
    Expired Derivative PositionsOpen
    
    
    Gain/
    
    
    
    
    
    
    Hedged Sales
    
    
    Gain/Year
    
    
    Position
    
    
    (Loss) (1)
    
    
    Maturity
    
    
    Price Per Unit
    
    
    (Loss) (1)Fair Value HedgesCopper fixed-price rod sales (lbs.) (2) & (3)
    
    
    2005
    
    
    
    13
    
    
    
    
    
    
    December 2006
    
    1.71/lb.
    
    
    2004
    
    
    
    11
    
    
    
    
    
    
    December 2005
    
    1.29/lb.
    
    
    Other Economic Price Protection Programs Not Qualifying for Hedge AccountingCopper fixed-price rod sales (lbs.) (2)
    
    
    2006
    
    
    
    103
    
    
    
    (29.4
    )
    
    November 2008
    
    3.14/lb.
    
    
    138.42005
    
    
    
    72
    
    
    
    14.6
    
    
    December 2006
    
    1.71/lb.
    
    
    69.32004
    
    
    
    51
    
    
    
    6.8
    
    
    October 2006
    
    1.29/lb.
    
    
    22.3Copper price protection (lbs.) (4), (5) & (6)
    
    
    2006
    
    
    
    1,216
    
    
    
    (371.3
    )
    
    December 2007
    
    1.63/lb.
    
    
    (637.6
    )2005
    
    
    
    2,344
    
    
    
    (223.9
    )
    
    December 2006/2007
    
    1.38/lb.
    
    
    (186.6
    )2004
    
    
    
    650
    
    
    
    (0.6
    )
    
    December 2005
    
    
    
    
    
    
    Copper quotational period swaps (lbs.)
    
    
    2006
    
    
    
    3
    
    
    
    1.7
    
    
    January 2007
    
    3.13/lb.
    
    
    (113.7
    )2005
    
    
    
    92
    
    
    
    (14.0
    )
    
    March 2006
    
    1.68/lb.
    
    
    (71.9
    )2004
    
    
    
    130
    
    
    
    (10.9
    )
    
    April 2005
    
    1.33/lb.
    
    
    (12.0
    )
 
 (1)
    
    Gains/losses are recognized in the Consolidated Statement of Income for the periods
presented, except for cash flow hedges, which are recorded in other comprehensive income
(loss).(2)
    
    Expired positions for hedge gains/losses for both the qualifying copper fixed-price program
and the non-qualifying copper fixed-price rod sales are combined in the copper fixed-price rod
sales realized gain/loss column. As a result of the 2006 first quarter sale of Magnet Wire
North American assets, we discontinued the qualifying copper fixed-price program.(3)
    
    The hedge gain or loss from changes in fair value is recognized in earnings. Changes in fair
value of the hedged item (or hedged exposure) attributable to hedged risk are also recognized
in earnings.(4)
    
    Losses from the copper price protection programs include premium expense.(5)
    
    The Company has recognized the following pre-tax charges associated with its 2005, 2006 and
2007 copper collar price protection programs: (i) a $0.6 million loss in 2004 and a $186.6
million loss in 2005 for a cumulative loss of $187.2 million on 2005 El Abra and PDMC
zero-premium copper collar price protection programs; (ii) a $175.0 million loss in 2005 and a
$637.6 million loss in 2006 for a cumulative loss of $812.6 million on 2006 zero-premium
copper collar and purchased put option price protection programs; and (iii) a $48.9 million
loss in 2005 and a $371.3 million loss in 2006 for a cumulative loss of $420.2 million on 2007
zero-premium copper collar and purchased put option price protection programs.(6)
    
    At December 31, 2005, we had entered into copper price protection positions expiring December
2006 and December 2007. Increased Energy Costs Could Reduce Our Profitability or Result in Losses
   We Continue to Experience Pressure on Our Copper Production Costs




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##### Table of Contents



38 Our Business Is Subject to Complex and Evolving Laws and Regulations and Environmental and
Regulatory Compliance May Impose Substantial Costs on Us
    Mine Closure Regulations May Impose Substantial Costs
      Levels of Ore Reserves and Mill and Leach Stockpiles Are Subject to Uncertainty and Our Ability
to Replenish Ore Reserves Is Important for Long-Term Viability




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##### Table of Contents



39   Operational Risks
  Our Operations Outside the United States Are Subject to the Risks of Doing Business in Foreign
Countries
   Failure to Complete the Merger with Freeport-McMoRan May Negatively Impact Our Stock Price and
Financial Results
  
 Item 3. Legal Proceedings
 I.
 II.
 A.




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##### Table of Contents



40 In Re The General
Adjudication of All Rights to Use Water in the Little Colorado Water System and Source In Re
The General Adjudication of All Rights to Use Water in the Gila River System and Source
  B.
 Morenci
  Miami
 Sierrita
 Bagdad
 C.
  Safford
 Ajo
 Bisbee
 D.
 1.




---



##### Table of Contents



41  2.
   E.
  1. United States v. Gila Valley Irrigation District, et al. Globe Equity No. 59
   2.
 3. United States,
et al. v. City of Tucson, et al.
 III.




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##### Table of Contents



42    IV. Phelps Dodge Tyrone, Inc. v. New Mexico Water Quality
Control Commission Gila Resources Information Project v. New Mexico Water Quality
Control Commission
 V.
 VI. Technical Industries, Inc. v. Cabot Corporation, et
al. In Re Carbon Black
Antitrust Litigation
 Carlisle Companies Incorporated, et al. v. Cabot Corporation,
et al.




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##### Table of Contents



43  VII.
 VIII.
 IX.
 X.
 XI. Phillips v. Phelps Dodge Corporation, et al Nathanson v. Phelps Dodge Corporation, et al Knisley v. Phelps Dodge Corp. et al
 
 Item 4. Submission of Matters to a Vote of Security Holders




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##### Table of Contents



44 
 Executive Officers of Phelps Dodge Corporation
  Officer of theAge at
    
    
    
    CorporationName
    
    2/26/07
    
    Position
    
    SinceJ. Steven Whisler
    
    52
    
    Chairman of the Board
    
    1987and Chief Executive OfficerTimothy R. Snider
    
    56
    
    President and Chief Operating
    
    1997OfficerRamiro G. Peru
    
    51
    
    Executive Vice President
    
    1995and Chief Financial OfficerDavid C. Naccarati
    
    54
    
    President, Phelps DodgeMining CompanyS. David Colton
    
    51
    
    Senior Vice President and
    
    1998General CounselNancy Mailhot
    
    43
    
    Senior Vice President-
    
    2004Human Resources




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##### Table of Contents



45 PHELPS DODGE CORPORATION
2006 Annual Report on Form 10-K
 
 PART II
 
 Item 5. Market for the Registrants Common Equity and Related Stockholder Matters
    (c) Total Number of
    
    (d) Maximum Number (orShares (or Units)
    
    Approximate Dollar Value)(a) Total Number
    
    (b) Average Price
    
    Purchased as Part of
    
    of Shares (or Units) That Mayof Shares (or Units)
    
    Paid Per
    
    Publicly Announced
    
    Yet Be Purchased UnderPeriod
    
    Purchased*
    
    Share (or Unit)
    
    Plans or Programs
    
    the Plans or ProgramsOctober 1-31, 2006
    
    
    16
    
    
    $
    92.50
    
    
    
    
    
    
    
    November 1-30, 2006
    
    
    1,485
    
    
    
    115.43
    
    
    
    
    
    
    
    December 1-31, 2006
    
    
    240
    
    
    
    120.52
    
    
    
    
    
    
    
    Total
    
    
    1,741
    
    
    
    115.92
    
    
    
    
    
    
    
    
 
 *
    
    This category includes shares repurchased under the Companys applicable stock option
and restricted stock plans (Plans) and its non-qualified supplemental savings plan (SSP).
Through the Plans, the Company repurchases shares to satisfy tax obligations on restricted
stock awards, and in the SSP, the Company repurchases shares as a result of changes in
investment elections by plan participants.




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##### Table of Contents



46 
 Item 6. Selected Financial Data
   Year Ended December 31,*2006 (a)
    
    
    2005 (b)
    
    
    2004 (c)
    
    
    2003 (d)
    
    
    2002 (e)Statement of Operations DataSales and other operating revenues
    
    $
    11,910.4
    
    
    
    8,287.1
    
    
    
    6,415.2
    
    
    
    3,498.5
    
    
    
    3,173.2Operating income (loss)
    
    
    4,226.9
    
    
    
    1,764.9
    
    
    
    1,474.9
    
    
    
    142.8
    
    
    
    (257.4
    )Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting changes
    
    
    3,035.9
    
    
    
    1,583.9
    
    
    
    1,023.6
    
    
    
    (21.1
    )
    
    
    (356.5
    )Income (loss) from discontinued operations, net of taxes**
    
    
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7
    
    
    
    39.2
    
    
    
    41.3Income
(loss) before extraordinary item and cumulative effect of
 accounting changes
    
    
    3,017.8
    
    
    
    1,566.5
    
    
    
    1,046.3
    
    
    
    18.1
    
    
    
    (315.2
    )Net income (loss)
    
    
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3
    
    
    
    94.8
    
    
    
    (338.1
    )Basic earnings (loss) per common share from continuing operations***
    
    
    15.00
    
    
    
    8.06
    
    
    
    5.41
    
    
    
    (0.19
    )
    
    
    (2.17
    )Diluted earnings (loss) per common share from continuing operations***
    
    
    14.92
    
    
    
    7.82
    
    
    
    5.18
    
    
    
    (0.19
    )
    
    
    (2.17
    )Basic earnings (loss) per common share from discontinued operations, extraordinary item
and cumulative effect of accounting changes***
    
    
    (0.09
    )
    
    
    (0.14
    )
    
    
    0.12
    
    
    
    0.65
    
    
    
    0.11Diluted earnings (loss) per common share from discontinued operations, extraordinary
item and cumulative effect of accounting changes***
    
    
    (0.09
    )
    
    
    (0.13
    )
    
    
    0.11
    
    
    
    0.65
    
    
    
    0.11Basic earnings (loss) per common share***
    
    
    14.91
    
    
    
    7.92
    
    
    
    5.53
    
    
    
    0.46
    
    
    
    (2.06
    )Diluted earnings (loss) per common share***
    
    
    14.83
    
    
    
    7.69
    
    
    
    5.29
    
    
    
    0.46
    
    
    
    (2.06
    )Balance Sheet Data(at period end)Current assets
    
    $
    7,600.9
    
    
    
    4,070.7
    
    
    
    2,661.7
    
    
    
    1,790.0
    
    
    
    1,428.2Total assets
    
    
    14,632.3
    
    
    
    10,358.0
    
    
    
    8,594.1
    
    
    
    7,272.9
    
    
    
    7,029.0Total debt
    
    
    891.9
    
    
    
    694.5
    
    
    
    1,096.9
    
    
    
    1,959.0
    
    
    
    2,110.6Long-term debt
    
    
    770.1
    
    
    
    677.7
    
    
    
    972.2
    
    
    
    1,703.9
    
    
    
    1,948.4Shareholders equity
    
    
    7,690.4
    
    
    
    5,601.6
    
    
    
    4,343.1
    
    
    
    3,063.8
    
    
    
    2,813.6Cash dividends declared per common share***
    
    
    4.7875
    
    
    
    3.1250
    
    
    
    0.2500
    
    
    
    
    
    
    
    Other DataNet cash provided by operating activities
    
    $
    5,079.2
    
    
    
    1,769.7
    
    
    
    1,700.1
    
    
    
    461.6
    
    
    
    359.1Capital expenditures and investments
    
    
    1,187.8
    
    
    
    698.2
    
    
    
    317.3
    
    
    
    102.4
    
    
    
    133.2Net cash used in investing activities
    
    
    (844.2
    )
    
    
    (368.0
    )
    
    
    (291.0
    )
    
    
    (87.7
    )
    
    
    (140.3
    )Net cash used in financing activities
    
    
    (1,213.2
    )
    
    
    (685.8
    )
    
    
    (947.2
    )
    
    
    (48.8
    )
    
    
    (244.8
    )Division ResultsPhelps Dodge Mining Company operating income (loss)
    
    $
    4,365.7
    
    
    
    1,929.9
    
    
    
    1,606.7
    
    
    
    265.2
    
    
    
    (65.0
    )Phelps Dodge Industries operating income (loss)
    
    
    57.6
    
    
    
    14.6
    
    
    
    18.8
    
    
    
    13.7
    
    
    
    (17.5
    )Corporate and Other operating loss
    
    
    (196.4
    )
    
    
    (179.6
    )
    
    
    (150.6
    )
    
    
    (136.1
    )
    
    
    (174.9
    )$
    4,226.9
    
    
    
    1,764.9
    
    
    
    1,474.9
    
    
    
    142.8
    
    
    
    (257.4
    )CopperCopper production  thousand short tons (h)
    
    
    1,218.7
    
    
    
    1,228.0
    
    
    
    1,260.6
    
    
    
    1,042.5
    
    
    
    1,012.1Copper sales from own mines  thousand short tons (h)
    
    
    1,214.5
    
    
    
    1,238.4
    
    
    
    1,268.9
    
    
    
    1,052.6
    
    
    
    1,034.5COMEX copper price (per pound) (f)
    
    $
    3.09
    
    
    
    1.68
    
    
    
    1.29
    
    
    
    0.81
    
    
    
    0.72LME copper price (per pound) (g)
    
    $
    3.05
    
    
    
    1.67
    
    
    
    1.30
    
    
    
    0.81
    
    
    
    0.71Commercially recoverable copper (million tons) (i)Ore reserves
    
    
    19.5
    
    
    
    17.7
    
    
    
    23.2
    
    
    
    19.5
    
    
    
    19.6Stockpiles and in-process inventories
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.421.0
    
    
    
    19.2
    
    
    
    24.8
    
    
    
    21.1
    
    
    
    21.0
 
 *
    
    2006, 2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 and 2002
reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent,
respectively). As a result of the Companys agreement to sell Columbian Chemicals Company
(Columbian), the operating results for Columbian have been reported separately from continuing
operations and shown as discontinued operations for all periods presented.**
    
    Refer to Note 2, Divestitures, to our Consolidated Financial Statements contained herein for
further discussion.***
    
    Basic and diluted earnings per common share and cash dividends declared per common share
reflect the March 10, 2006, two-for-one stock split, which was approved by the board of
directors on February 1, 2006. Refer to Note 16, Shareholders Equity, for further discussion.




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##### Table of Contents



47  (a)
    
    Reported amounts included after-tax, net special gains of $330.7 million, or $1.62 per common
share, for Inco termination fee; $127.5 million, or 63 cents per common share, for the
reversal of U.S. deferred tax asset valuation allowance; $2.0 million, or 1 cent per common
share, for legal matters; $0.4 million for sale of non-core real estate; and $0.2 million for
the reversal of Minera PD Peru deferred tax asset valuation allowance; partially offset by net
special charges of $54.5 million, or 27 cents per common share, for environmental provisions;
$30.9 million, or 15 cents per common share, for charges associated with discontinued
operations in connection with the sale of Columbian; $9.6 million, or 5 cents per common
share, for asset impairment charges; $7.6 million (net of minority interest), or 4 cents per
common share, for tax on unremitted foreign earnings; $5.1 million, or 3 cents per common
share, for charges and loss on disposal in connection with the sale of North American magnet
wire assets; $4.7 million, or 2 cents per common share, for charges and loss on the disposal
in connection with the sale of HPC; $3.0 million, or 1 cent per common share, for a lease
termination settlement; and $1.2 million associated with dissolution of an international wire
and cable entity.(b)
    
    Reported amounts included after-tax, net special charges of $331.8 million, or $1.64 per
common share, for asset impairment charges; tax expense of $88.1 million, or 44 cents per
common share, for foreign dividend taxes; $86.4 million, or 42 cents per common share, for
environmental provisions; $42.6 million, or 21 cents per common share, for charges associated
with discontinued operations in connection with the pending sale of Columbian; $41.3 million,
or 20 cents per common share, for early debt extinguishment costs; $34.5 million (net of
minority interest), or 17 cents per common share, for tax on unremitted foreign earnings;
$23.6 million, or 12 cents per common share, for a tax charge associated with minimum pension
liability reversal; $10.1 million, or 5 cents per common share, for cumulative effect of
accounting change; $5.9 million, or 3 cents per common share, for transaction and
employee-related costs associated with the sale of North American magnet wire assets;
partially offset by special gains of $388.0 million, or $1.92 per common share, for sale of a
cost-basis investment; $181.7 million, or 89 cents per common share, for change of interest
gains at Cerro Verde and Ojos del Salado; $15.6 million, or 8 cents per common share, for
legal matters; $11.9 million, or 6 cents per common share, for the reversal of PD Brazil
deferred tax asset valuation allowance; $8.5 million, or 4 cents per common share, for the
sale of non-core real estate; $4.0 million, or 2 cents per common share, for the reversal of
U.S. deferred tax asset valuation allowance; $0.4 million for environmental insurance
recoveries; and $0.1 million for Magnet Wire restructuring activities. The after-tax, net
special charges of $42.6 million associated with discontinued operations consisted of $67.0
million (net of minority interests), or 33 cents per common share, for a goodwill impairment
charge; taxes of $7.6 million, or 4 cents per common share, associated with the sale and
dividends paid in 2005; and $5.0 million, or 2 cents per common share, for a loss on disposal
of Columbian associated with transaction and employee-related costs; partially offset by a
deferred income tax benefit of $37.0 million, or 18 cents per common share.(c)
    
    Reported amounts included after-tax, net special charges of $44.7 million, or 23 cents per
common share, for environmental provisions; $30.9 million (net of minority interests), or 15
cents per common share, for early debt extinguishment costs; $9.9 million, or 5 cents per
common share, for the write-down of two cost-basis investments; $9.6 million, or 5 cents per
common share, for taxes on anticipated foreign dividends; $9.0 million, or 5 cents per common
share, for a deferred tax asset valuation allowance at our Brazilian wire and cable operation;
$7.6 million, or 4 cents per common share, for Magnet Wire restructuring activities; $5.9
million, or 3 cents per common share, for asset impairments (included $4.5 million, or 2 cents
per common share, for discontinued operations); and $0.7 million for interest on a Texas
franchise tax matter; partially offset by special gains of $30.0 million, or 15 cents per
common share, for the reversal of a U.S. deferred tax asset valuation allowance; $15.7 million
(net of minority interest), or 8 cents per common share, for the reversal of an El Abra
deferred tax asset valuation allowance; $10.1 million, or 5 cents per common share, for the
gain on the sale of uranium royalty rights; $7.4 million, or 4 cents per common share, for
environmental insurance recoveries; and $4.7 million, or 3 cents per common share, for the
settlement of historical legal matters.(d)
    
    Reported amounts included after-tax, net special gains of $2.4 million, or 1 cent per common
share, for the termination of a foreign postretirement benefit plan associated with
discontinued operations; $0.5 million for environmental insurance recoveries; $0.2 million for
the reassessment of prior restructuring programs; $6.4 million, or 4 cents per common share,
on the sale of a cost-basis investment; $8.4 million, or 5 cents per common share, for
cumulative effect of an accounting change; $1.0 million, or 1 cent per common share, for the
tax benefit relating to additional 2001 net operating loss carryback; and an extraordinary
gain of $68.3 million, or 38 cents per common share, on the acquisition of our partners
one-third interest in Chino Mines Company; partially offset by charges of $27.0 million, or 16
cents per common share, for environmental provisions (included a gain of $0.5 million for
discontinued operations); $8.0 million, or 4 cents per common share, for a probable Texas
franchise tax matter; $2.9 million, or 2 cents per common share, for the settlement of
historical legal matters; and $2.6 million, or 1 cent per common share, for asset and goodwill
impairments.(e)
    
    Reported amounts included after-tax, net special charges of $153.5 million, or 91 cents per
common share, for Phelps Dodge Mining Company asset impairment charges and closure provisions;
$53.0 million, or 31 cents per common share, for historical lawsuit settlements; $45.0
million, or 27 cents per common share, for a historical arbitration award; $26.6 million, or
16 cents per common share, for early debt extinguishment costs; $23.0 million, or 14 cents per
common share, for Phelps Dodge Industries restructuring activities; $22.9 million, or 13 cents
per common share, for cumulative effect of an accounting change; $14.0 million, or 8 cents per
common share, for environmental provisions (included a gain of $0.6 million for discontinued
operations); $1.2 million, or 1 cent per common share, for the write-off of two cost-basis
investments; $1.0 million, or 1 cent per common share, for the settlement of legal matters;
and $0.5 million for the reassessment and additional retirement benefits in connection with
prior restructuring programs; partially offset by special gains of $29.1 million, or 17 cents
per common share, for environmental insurance recoveries; $22.6 million, or 13 cents per
common share, for the gain on the sale of a non-core parcel of real estate; $13.0 million, or
8 cents per common share, for the release of deferred taxes previously provided with regard to
Plateau Mining Corporation; and $66.6 million, or 40 cents per common share, for the tax
benefit relating to the net operating loss carryback prior to 2002 resulting from a change in
U.S. tax legislation; and $0.5 million associated with discontinued operations for the
reassessment of a prior restructuring program.(f)
    
    New York Commodity Exchange annual average spot price per pound  cathodes.(g)
    
    London Metal Exchange annual average spot price per pound  cathodes.(h)
    
    2006, 2005 and 2004 reflected production and sales on a consolidated basis; 2003 and 2002
reflected that information on a pro rata basis.(i)
    
    Commercially recoverable copper is reflected on a pro rata basis. The increase in ore
reserves at December 31, 2006, was primarily due to the addition
of Tenke Fungurume ore reserves
and sulfide leach ore reserves at El Abra. The decrease in ore reserves at December 31, 2005, was
primarily due to the reduction of the Companys interest in
Cerro Verde to 53.56 percent from
82.5 percent, new pit designs at Bagdad, Cerro Verde, Chino, Cobre, Tyrone and Candelaria, as
well as 2005 production.




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##### Table of Contents



48
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
   Managements Annual Report on Internal Control over Financial Reporting and Report of
Independent Registered Public Accounting Firm
  Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information




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##### Table of Contents



49 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     
 Overview of Phelps Dodge Corporations Businesses and Managements Assessment of Key Factors
and Indicators that Could Impact Our Business, Operating Results and Cash Flows




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##### Table of Contents



50  Markets.
    Metals Week Metals Week
 i.e.
   Energy Costs.
   Cost Structure.




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##### Table of Contents



51  Environmental and Mine Closure Regulatory Compliance.
 Ore Reserves.
     
 Critical Accounting Policies and Estimates
   Ore Reserves.




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##### Table of Contents



52  Metals Week
 Asset Impairments. Metals Week
 Metals Week
 Recoverable Copper.
   Deferred Taxes.




---



##### Table of Contents



53     Pension Plans.




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##### Table of Contents



54    Postretirement and Other Employee Benefits Other Than Pensions.
    i.e.,




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##### Table of Contents



55   Environmental Obligations.
    Reclamation/Asset Retirement Obligations.




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##### Table of Contents



56    Consolidated Financial Results
        2006
    
    2005
    
    2004Sales and other operating revenues
    
    $
    11,910.4
    
    
    
    8,287.1
    
    
    
    6,415.2Operating income
    
    $
    4,226.9
    
    
    
    1,764.9
    
    
    
    1,474.9Minority interests in consolidated subsidiaries
    
    $
    (792.4
    )
    
    
    (190.4
    )
    
    
    (201.1
    )Income from continuing operations before
cumulative effect of accounting change
    
    $
    3,035.9
    
    
    
    1,583.9
    
    
    
    1,023.6Income (loss) from discontinued operations
    
    
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7Cumulative effect of accounting change
    
    
    
    
    
    
    (10.1
    )
    
    
    Net income
    
    $
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3Basic earnings per common share:*Income from continuing operations before
cumulative 
effect of accounting change
    
    $
    15.00
    
    
    
    8.06
    
    
    
    5.41Income (loss) from discontinued operations
    
    
    (0.09
    )
    
    
    (0.09
    )
    
    
    0.12Cumulative effect of accounting change
    
    
    
    
    
    
    (0.05
    )
    
    
    Basic earnings per common share
    
    $
    14.91
    
    
    
    7.92
    
    
    
    5.53Diluted earnings per common share:*Income from continuing operations before
cumulative 
effect of accounting change
    
    $
    14.92
    
    
    
    7.82
    
    
    
    5.18Income (loss) from discontinued operations
    
    
    (0.09
    )
    
    
    (0.08
    )
    
    
    0.11Cumulative effect of accounting change
    
    
    
    
    
    
    (0.05
    )
    
    
    Diluted earnings per common share
    
    $
    14.83
    
    
    
    7.69
    
    
    
    5.29
 
 *
    
    Earnings per common share for 2005 and 2004 have been adjusted to reflect the March 10, 2006,
two-for-one stock split.




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##### Table of Contents



57    Special Items, Net of Taxes (Includes Special Items and Provisions, Net, in Operating Income
and Other Non-Operating Significant Items Affecting Comparability of Results)
     2006
    
    2005
    
    2004Net income
    
    $
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3Special items, net of taxes
    
    
    344.2
    
    
    
    (54.1
    )
    
    
    (50.4
    )Net income excluding special items (after taxes)
    
    $
    2,673.6
    
    
    
    1,610.5
    
    
    
    1,096.7




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##### Table of Contents



58    $/ShareConsolidated Statement of Income Line Item
    
    Pre-tax
    
    After-tax
    
    After-taxSpecial items and provisions, net (included in
operating income):PDMC (see Business Segment disclosure)
    
    $
    (45.6
    )
    
    
    (34.6
    )
    
    
    (0.17
    )PDI (see Business Segment disclosure)
    
    
    (15.8
    )
    
    
    (16.6
    )
    
    
    (0.08
    )Corporate and Other Environmental provisions, net
    
    
    (22.2
    )
    
    
    (16.9
    )
    
    
    (0.08
    )Environmental insurance recoveries, net
    
    
    0.4
    
    
    
    0.3
    
    
    
    Asset impairment charges
    
    
    (2.8
    )
    
    
    (2.1
    )
    
    
    (0.01
    )Historical legal matters
    
    
    (4.2
    )
    
    
    (3.2
    )
    
    
    (0.02
    )Lease termination settlement
    
    
    (3.9
    )
    
    
    (3.0
    )
    
    
    (0.01
    )Sale of non-core real estate
    
    
    0.5
    
    
    
    0.4
    
    
    
    (32.2
    )
    
    
    (24.5
    )
    
    
    (0.12
    )Special items and provisions, net (included in
operating income)
    
    
    (93.6
    )
    
    
    (75.7
    )
    
    
    (0.37
    )Other non-operating significant items affecting
comparability of results:Inco termination fee
    
    
    435.1
    
    
    
    330.7
    
    
    
    1.62Provision for taxes on income (A):Tax on unremitted foreign earnings
    
    
    
    
    
    
    (9.5
    )
    
    
    (0.05
    )Reversal of U.S. deferred tax asset
valuation allowance
    
    
    
    
    
    
    127.5
    
    
    
    0.63Reversal of Minera PD Peru deferred tax
asset valuation allowance
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    118.2
    
    
    
    0.58Minority interests in consolidated subsidiaries (B):Tax on unremitted foreign earnings
    
    
    
    
    
    
    1.9
    
    
    
    0.01Discontinued operations (C):Loss on disposal
    
    
    (15.9
    )
    
    
    (16.5
    )
    
    
    (0.08
    )Transaction and employee-related costs
    
    
    (14.4
    )
    
    
    (14.4
    )
    
    
    (0.07
    )(30.3
    )
    
    
    (30.9
    )
    
    
    (0.15
    )$
    311.2
    
    
    
    344.2
    
    
    
    1.69
 
 (A)
    
    Provision for taxes on income of $1,010.2 million, as reflected in the Consolidated Statement
of Income, included other amounts that have not been separately disclosed as special items as
these amounts are typical and representative of the normal course of the Companys business in
a given period.(B)
    
    Minority interests in consolidated subsidiaries of $792.4 million, as reflected in the
Consolidated Statement of Income, included other amounts that have not been separately
disclosed as special items as these amounts are typical and representative of the normal
course of the Companys business in a given period.(C)
    
    Loss from discontinued operations of $18.1 million, as reflected in the Consolidated
Statement of Income, included the operating results of Columbian Chemicals of $12.8 million,
which has not been separately disclosed as special items. Refer to Note 2, Divestitures, for
further discussion of special items recorded in discontinued operations.  Inco termination fee.
 Provision for taxes on income.




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##### Table of Contents



59   $/ShareConsolidated Statement of Income Line Item
    
    Pre-tax
    
    After-tax
    
    After-tax*Special items and provisions, net (included in
operating income):PDMC (see Business Segment disclosure)
    
    $
    (447.3
    )
    
    
    (342.4
    )
    
    
    (1.69
    )PDI (see Business Segment disclosure)
    
    
    (18.6
    )
    
    
    (14.2
    )
    
    
    (0.07
    )Corporate and Other Environmental provisions, net
    
    
    (75.4
    )
    
    
    (57.6
    )
    
    
    (0.28
    )Environmental insurance recoveries, net
    
    
    2.1
    
    
    
    1.6
    
    
    
    0.01Historical legal matters
    
    
    4.9
    
    
    
    4.6
    
    
    
    0.02Sale of non-core real estate
    
    
    11.2
    
    
    
    8.5
    
    
    
    0.04(57.2
    )
    
    
    (42.9
    )
    
    
    (0.21
    )Special items and provisions, net (included in
operating income)
    
    
    (523.1
    )
    
    
    (399.5
    )
    
    
    (1.97
    )Other non-operating significant items affecting
comparability of results:Early debt extinguishment costs
    
    
    (54.0
    )
    
    
    (41.3
    )
    
    
    (0.20
    )Gain on sale of cost-basis investment
    
    
    438.4
    
    
    
    388.0
    
    
    
    1.92Change in interest gains:Cerro Verde stock issuance
    
    
    159.5
    
    
    
    172.9
    
    
    
    0.85Ojos del Salado stock issuance
    
    
    8.8
    
    
    
    8.8
    
    
    
    0.04168.3
    
    
    
    181.7
    
    
    
    0.89Provision for taxes on income (A):Foreign dividend taxes
    
    
    
    
    
    
    (88.1
    )
    
    
    (0.44
    )Tax on unremitted foreign earnings
    
    
    
    
    
    
    (43.1
    )
    
    
    (0.21
    )Tax charge associated with minimum
pension liability reversal
    
    
    
    
    
    
    (23.6
    )
    
    
    (0.12
    )Reversal of U.S. deferred tax asset
valuation allowance
    
    
    
    
    
    
    4.0
    
    
    
    0.02Reversal of PD Brazil deferred tax asset
valuation allowance
    
    
    
    
    
    
    11.9
    
    
    
    0.06
    
    
    
    (138.9
    )
    
    
    (0.69
    )Minority interests in consolidated subsidiaries (B):Tax on unremitted foreign earnings
    
    
    
    
    
    
    8.6
    
    
    
    0.04Discontinued operations (C):Transaction and employee-related costs
    
    
    (5.8
    )
    
    
    (5.0
    )
    
    
    (0.02
    )Goodwill impairment charge
    
    
    (89.0
    )
    
    
    (67.0
    )
    
    
    (0.33
    )Transaction and dividend taxes
    
    
    
    
    
    
    (7.6
    )
    
    
    (0.04
    )Deferred income tax benefit
    
    
    
    
    
    
    37.0
    
    
    
    0.18$
    (94.8
    )
    
    
    (42.6
    )
    
    
    (0.21
    )Cumulative effect of accounting change
    
    
    (13.5
    )
    
    
    (10.1
    )
    
    
    (0.05
    )$
    (78.7
    )
    
    
    (54.1
    )
    
    
    (0.27
    )
 
 *
    
    After-tax per common share amounts have been adjusted to reflect the March 10, 2006,
two-for-one stock split.(A)
    
    Provision for taxes on income of $577.0 million, as reflected in the Consolidated Statement
of Income, included other amounts that have not been separately disclosed as special items as
these amounts are typical and representative of the normal course of the Companys business in
a given period.(B)
    
    Minority interests in consolidated subsidiaries of $190.4 million, as reflected in the
Consolidated Statement of Income, included other amounts that have not been separately
disclosed as special items as these amounts are typical and representative of the normal
course of the Companys business in a given period.(C)
    
    Loss from discontinued operations of $17.4 million, as reflected in the Consolidated
Statement of Income, included the operating results of Columbian Chemicals of $25.2 million,
which have not been separately disclosed as special items. Refer to Note 2, Divestitures, for
further discussion of special items recorded in discontinued operations.  Early debt extinguishment costs.
 Gain on sale of cost-basis investment.
 Change in interest gains.




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##### Table of Contents



60   Provision for taxes on income.
    Cumulative effect of accounting change.
   $/ShareConsolidated Statement of Income Line Item
    
    Pre-tax
    
    After-tax
    
    After-tax*Special items and provisions, net (included in
operating income):PDMC (see Business Segment disclosure)
    
    $
    (11.3
    )
    
    
    (8.3
    )
    
    
    (0.05
    )PDI (see Business Segment disclosure)
    
    
    (11.4
    )
    
    
    (8.3
    )
    
    
    (0.04
    )Corporate and Other Environmental provisions, net
    
    
    (41.8
    )
    
    
    (31.8
    )
    
    
    (0.16
    )Environmental insurance recoveries, net
    
    
    0.2
    
    
    
    0.1
    
    
    
    Historical legal matters
    
    
    2.7
    
    
    
    (0.5
    )
    
    
    (38.9
    )
    
    
    (32.2
    )
    
    
    (0.16
    )Special items and provisions, net (included in
operating income)
    
    
    (61.6
    )
    
    
    (48.8
    )
    
    
    (0.25
    )Other non-operating significant items affecting
comparability of results:Interest expense (A):Texas franchise tax matter
    
    
    (0.9
    )
    
    
    (0.7
    )
    
    
    Early debt extinguishment costs
    
    
    (43.2
    )
    
    
    (34.3
    )
    
    
    (0.17
    )Miscellaneous income and expense, net (B):Cost-basis investment write-downs
    
    
    (11.1
    )
    
    
    (9.9
    )
    
    
    (0.05
    )Gain on sale of miscellaneous asset
    
    
    10.1
    
    
    
    10.1
    
    
    
    0.05Historical legal matter
    
    
    9.5
    
    
    
    7.2
    
    
    
    0.048.5
    
    
    
    7.4
    
    
    
    0.04Provision for taxes on income (C):Foreign dividend taxes
    
    
    
    
    
    
    (9.6
    )
    
    
    (0.05
    )PD Brazil deferred tax asset valuation
allowance
    
    
    
    
    
    
    (9.0
    )
    
    
    (0.05
    )Reversal of El Abra deferred tax asset
valuation allowance
    
    
    
    
    
    
    30.8
    
    
    
    0.16Reversal of U.S. deferred tax asset
valuation allowance
    
    
    
    
    
    
    30.0
    
    
    
    0.15
    
    
    
    42.2
    
    
    
    0.21Minority interests in consolidated subsidiaries (D):Reversal of El Abra deferred tax asset
valuation allowance
    
    
    
    
    
    
    (15.1
    )
    
    
    (0.08
    )Candelaria early debt extinguishment costs
    
    
    
    
    
    
    2.5
    
    
    
    0.01El Abra early debt extinguishment costs
    
    
    
    
    
    
    0.9
    
    
    
    0.01
    
    
    
    (11.7
    )
    
    
    (0.06
    )Discontinued operations (E):Asset impairment charge
    
    
    (5.9
    )
    
    
    (4.5
    )
    
    
    (0.02
    )$
    (103.1
    )
    
    
    (50.4
    )
    
    
    (0.25
    )




---



##### Table of Contents



61 
 *
    
    After-tax per common share amounts have been adjusted to reflect the
March 10, 2006, two-for-one stock split.
 (A)
    
    Interest expense of $123.2 million, as reflected in the Consolidated Statement of Income,
included other amounts that have not been separately disclosed as special items as these
amounts are typical and representative of the normal course of the Companys business in a
given period.
 (B)
    
    Miscellaneous income and expense, net, of $45.3 million, as reflected in the Consolidated
Statement of Income, included other amounts that have not been separately disclosed as special
items, as these amounts are typical and representative of the normal course of the Companys
business in a given period.
 (C)
    
    Provision for taxes on income of $131.3 million, as reflected in the Consolidated Statement
of Income, included other amounts that have not been separately disclosed as special items as
these amounts are typical and representative of the normal course of the Companys business in
a given period.
 (D)
    
    Minority interests in consolidated subsidiaries of $201.1 million, as reflected in the
Consolidated Statement of Income, included other amounts that have not been separately
disclosed as special items, as these amounts are typical and representative of the normal
course of the Companys business in a given period.
 (E)
    
    Income from discontinued operations of $22.7 million, as reflected in the Consolidated
Statement of Income, included the operating results of Columbian Chemicals of $27.2 million,
which have not been separately disclosed as special items.
  Interest expense.
 Early debt extinguishment costs.
 Miscellaneous income and expense, net.
   Provision for taxes on income.
    Discontinued operations.
 Business Divisions
     
 RESULTS OF PHELPS DODGE MINING COMPANY




---



##### Table of Contents



62        ($ in millions except per pound amounts)2006
    
    
    2005
    
    
    2004Sales and other operating revenues
to unaffiliated customers
    
    $
    10,656.4
    
    
    
    7,097.5
    
    
    
    5,443.4Operating income
    
    $
    4,365.7
    
    
    
    1,929.9
    
    
    
    1,606.7Operating income before special items
and provisions, net
    
    $
    4,411.3
    
    
    
    2,377.2
    
    
    
    1,618.0Minority interests in consolidated subsidiaries (A)
    
    $
    (784.9
    )
    
    
    (184.9
    )
    
    
    (196.8
    )Copper production (thousand short tons):Total copper production
    
    
    1,279.9
    
    
    
    1,288.0
    
    
    
    1,323.6Less undivided interest (B)
    
    
    61.2
    
    
    
    60.0
    
    
    
    63.0Copper production on a consolidated basis
    
    
    1,218.7
    
    
    
    1,228.0
    
    
    
    1,260.6Less minority participants shares (A)
    
    
    212.4
    
    
    
    185.7
    
    
    
    178.9Copper production on a pro rata basis
    
    
    1,006.3
    
    
    
    1,042.3
    
    
    
    1,081.7Copper sales (thousand short tons):Total copper sales from own mines
    
    
    1,275.6
    
    
    
    1,298.4
    
    
    
    1,331.9Less undivided interest (B)
    
    
    61.1
    
    
    
    60.0
    
    
    
    63.0Copper sales from own mines on a
consolidated basis
    
    
    1,214.5
    
    
    
    1,238.4
    
    
    
    1,268.9Less minority participants shares (A)
    
    
    211.4
    
    
    
    186.8
    
    
    
    179.8Copper sales from own mines on a
pro rata basis
    
    
    1,003.1
    
    
    
    1,051.6
    
    
    
    1,089.1Purchased copper
    
    
    367.8
    
    
    
    410.7
    
    
    
    433.0Total copper sales on a consolidated basis
    
    
    1,582.3
    
    
    
    1,649.1
    
    
    
    1,701.9LME average spot copper price
per pound  cathodes
    
    $
    3.049
    
    
    
    1.669
    
    
    
    1.300COMEX average spot copper price
per pound  cathodes
    
    $
    3.089
    
    
    
    1.682
    
    
    
    1.290Molybdenum production (million pounds)
    
    
    68.2
    
    
    
    62.3
    
    
    
    57.5Molybdenum sales (million pounds):Net Phelps Dodge share from own mines
    
    
    68.8
    
    
    
    59.9
    
    
    
    63.1Purchased molybdenum
    
    
    8.3
    
    
    
    12.9
    
    
    
    12.9Total molybdenum sales
    
    
    77.1
    
    
    
    72.8
    
    
    
    76.0Metals Week:Molybdenum Dealer Oxide mean price per pound
    
    $
    24.75
    
    
    
    31.73
    
    
    
    16.41M-1 price per pound
    
    $
    24.90
    
    
    
    32.12
    
    
    
    14.42
 
 (A)
    
    Minority participant interests include (i) a 20 percent partnership interest in Candelaria in
Chile owned by SMMA Candelaria, Inc., Sumitomo Metal Mining Co., Ltd. and Sumitomo
Corporation, (ii) a 49 percent partnership interest in the El Abra copper mining operation in
Chile held by Corporación Nacional del Cobre de Chile (CODELCO), (iii) a 17.5 percent equity
interest through May 31, 2005, and a 46.44 percent equity interest beginning June 1, 2005, in
the Cerro Verde copper mining operation in Peru held by SMM Cerro Verde Netherlands B.V.,
Compañía de Minas Buenaventura S.A.A. and other shareholders, and (iv) a 20 percent
partnership interest beginning December 23, 2005, in the Ojos del Salado copper mining
operation in Chile held by SMMA Candelaria, Inc.(B)
    
    Represents a 15 percent undivided interest in Morenci, Arizona, copper mining complex held by
Sumitomo Metal Mining Arizona, Inc. (thousand short tons)2006
    
    
    2005
    
    
    2004Minority participants share of copper production:Candelaria
    
    
    37.4
    
    
    
    35.9
    
    
    
    44.1Ojos del Salado
    
    
    5.4
    
    
    
    0.1
    
    
    
    Cerro Verde
    
    
    51.5
    
    
    
    35.9
    
    
    
    17.1El Abra
    
    
    118.1
    
    
    
    113.8
    
    
    
    117.7212.4
    
    
    
    185.7
    
    
    
    178.9




---



##### Table of Contents



63 Total
PDMC Division  Sales
    Total
PDMC Division  Operating Income




---



##### Table of Contents



64    i.e.
   (in millions except per pound amounts)2005
    
    
    2006
    
    
    2007Copper Collars:Pounds of zero-premium copper collars
purchased (A)
    
    
    198
    
    
    
    564
    
    
    
    486Average LME put strike price (floor) per pound
    
    $
    0.943
    
    
    
    0.954
    
    
    
    0.950Annual average LME call strike price (ceiling)
per pound
    
    $
    1.400
    
    
    
    1.632
    
    
    
    2.002Associated pre-tax gains (charges) for 2006 (B):Intrinsic value component
    
    $
    N/A
    
    
    
    (651
    )
    
    
    (400
    )Time value component
    
    $
    N/A
    
    
    
    13
    
    
    
    32Associated pre-tax charges for 2005 (A)(B):Intrinsic value component
    
    $
    (54
    )
    
    
    (151
    )
    
    
    Time value component
    
    $
    
    
    
    
    (13
    )
    
    
    (35
    )Copper Put Options:Pounds of copper put options purchased
    
    $
    
    
    
    
    564
    
    
    
    730Average LME put strike price per pound
    
    $
    
    
    
    
    0.950
    
    
    
    0.950Premium cost per pound
    
    $
    
    
    
    
    0.020
    
    
    
    0.023Associated pre-tax charges for 2006 (B):Intrinsic value component
    
    $
    
    
    
    
    
    
    
    
    Time value component
    
    $
    
    
    
    
    
    
    
    
    (3
    )Associated pre-tax charges for 2005 (A)(B):Intrinsic value component
    
    $
    
    
    
    
    (11
    )
    
    
    Time value component
    
    $
    
    
    
    
    
    
    
    
    (14
    )
 
 (A)
    
    2005 excludes El Abra (refer to the table on page 65 for a summary of El Abras 2005
zero-premium copper collars).(B)
    
    The 2005 realized pre-tax charges resulted from the 2005 LME annual average of $1.671 per
pound, calculated on a daily price basis, exceeding the $1.400 per pound ceiling of our 2005
zero-premium copper collars. The 2006 realized pre-tax charges resulted from the 2006 LME
annual average of $3.053 per pound, calculated on a daily price basis, exceeding the $1.632
per pound ceiling of our 2006 zero-premium copper collars. The cumulative pre-tax charges for
our 2006 copper collars and copper put options were approximately $813 million, reflecting
primarily intrinsic value charges and put option premiums. The 2007 unrealized pre-tax charges
resulted from the 2007 LME forward-curve price average of $2.870 per pound exceeding the
$2.002 per pound ceiling of our 2007 zero-premium copper collars. The cumulative pre-tax
charges for our 2007 copper collars and copper put options, including amounts recognized in
2005 and 2006, were approximately $420 million, consisting of approximately $400 million for
the intrinsic value component and approximately $3 million for the time value component and
approximately $17 million for put option premiums.




---



##### Table of Contents



65  (in millions except per pound amounts)El Abra Copper Collars:Pounds of zero-premium copper collars purchased
    
    
    452Average LME put strike price (floor) per pound
    
    $
    1.000Annual average LME call strike price (ceiling) per pound
    
    $
    1.376Associated pre-tax charges for 2005 (A)
    
    $
    (133
    )
 
 (A)
    
    The 2005 realized pre-tax charges resulted from the 2005 LME annual price average of $1.671
per pound, calculated on a daily price basis, exceeding the $1.376 per pound ceiling of our
2005 zero-premium copper collars (approximately $68 million for PDs share).




---



##### Table of Contents



66    ($ in millions)2006
    
    
    2005
    
    
    2004Environmental provisions, net
    
    $
    (49.5
    )
    
    
    (35.7
    )
    
    
    (16.8
    )Environmental insurance recoveries, net
    
    
    (0.4
    )
    
    
    (1.5
    )
    
    
    9.1Asset impairment charges
    
    
    (2.5
    )
    
    
    (424.6
    )
    
    
    (1.1
    )Historical legal matters
    
    
    6.8
    
    
    
    14.5
    
    
    
    (2.5
    )$
    (45.6
    )
    
    
    (447.3
    )
    
    
    (11.3
    )




---



##### Table of Contents



67 PDMC Results By Reportable Segments
  U.S. Mines
    
    South American MinesChino/
    
    
    
    
    
    
    
    
    
    Candelaria/
    
    CerroMorenci
    
    Bagdad
    
    Sierrita
    
    Cobre
    
    Tyrone
    
    Subtotal
    
    Ojos del Salado
    
    Verde
    
    El Abra
    
    Subtotal2006Copper production (thousand short tons):Total production
    
    
    407.8
    
    
    
    82.7
    
    
    
    80.8
    
    
    
    92.9
    
    
    
    31.8
    
    
    
    696.0
    
    
    
    214.3
    
    
    
    110.9
    
    
    
    241.0
    
    
    
    566.2Less undivided interest
    
    
    61.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper production on a consolidated basis
    
    
    346.6
    
    
    
    82.7
    
    
    
    80.8
    
    
    
    92.9
    
    
    
    31.8
    
    
    
    634.8
    
    
    
    214.3
    
    
    
    110.9
    
    
    
    241.0
    
    
    
    566.2Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.8
    
    
    
    51.5
    
    
    
    118.1
    
    
    
    212.4Copper production on a pro rata basis
    
    
    346.6
    
    
    
    82.7
    
    
    
    80.8
    
    
    
    92.9
    
    
    
    31.8
    
    
    
    634.8
    
    
    
    171.5
    
    
    
    59.4
    
    
    
    122.9
    
    
    
    353.8Copper sales (thousand short tons):Total copper sales from own mines
    
    
    407.3
    
    
    
    82.6
    
    
    
    80.6
    
    
    
    92.7
    
    
    
    31.8
    
    
    
    695.0
    
    
    
    212.5
    
    
    
    107.1
    
    
    
    243.3
    
    
    
    562.9Less undivided interest
    
    
    61.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper sales from own mines on a
consolidated basis
    
    
    346.2
    
    
    
    82.6
    
    
    
    80.6
    
    
    
    92.7
    
    
    
    31.8
    
    
    
    633.9
    
    
    
    212.5
    
    
    
    107.1
    
    
    
    243.3
    
    
    
    562.9Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.5
    
    
    
    49.7
    
    
    
    119.2
    
    
    
    211.4Copper sales from own mines on a
pro rata basis
    
    
    346.2
    
    
    
    82.6
    
    
    
    80.6
    
    
    
    92.7
    
    
    
    31.8
    
    
    
    633.9
    
    
    
    170.0
    
    
    
    57.4
    
    
    
    124.1
    
    
    
    351.5Total purchased copper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    3.1Total copper sales on a consolidated basis
    
    
    346.2
    
    
    
    82.6
    
    
    
    80.6
    
    
    
    92.7
    
    
    
    31.8
    
    
    
    633.9
    
    
    
    215.6
    
    
    
    107.1
    
    
    
    243.3
    
    
    
    566.0($ in millions)Operating income (loss)
    
    $
    820.6
    
    
    
    317.8
    
    
    
    559.8
    
    
    
    148.1
    
    
    
    43.5
    
    
    
    1,889.8
    
    
    
    794.7
    
    
    
    418.2
    
    
    
    1,070.9
    
    
    
    2,283.8Special items and provisions, net
    
    
    (1.4
    )
    
    
    2.2
    
    
    
    (5.1
    )
    
    
    (24.5
    )
    
    
    (2.2
    )
    
    
    (31.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss) before special
items and provisions, net
    
    $
    822.0
    
    
    
    315.6
    
    
    
    564.9
    
    
    
    172.6
    
    
    
    45.7
    
    
    
    1,920.8
    
    
    
    794.7
    
    
    
    418.2
    
    
    
    1,070.9
    
    
    
    2,283.82005Copper production (thousand short tons):Total production
    
    
    400.0
    
    
    
    100.6
    
    
    
    79.3
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    725.2
    
    
    
    210.4
    
    
    
    103.1
    
    
    
    232.2
    
    
    
    545.7Less undivided interest
    
    
    60.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper production on a consolidated basis
    
    
    340.0
    
    
    
    100.6
    
    
    
    79.3
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    665.2
    
    
    
    210.4
    
    
    
    103.1
    
    
    
    232.2
    
    
    
    545.7Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.0
    
    
    
    35.9
    
    
    
    113.8
    
    
    
    185.7Copper production on a pro rata basis
    
    
    340.0
    
    
    
    100.6
    
    
    
    79.3
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    665.2
    
    
    
    174.4
    
    
    
    67.2
    
    
    
    118.4
    
    
    
    360.0Copper sales (thousand short tons):Total copper sales from own mines
    
    
    400.0
    
    
    
    104.4
    
    
    
    82.8
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    732.5
    
    
    
    210.6
    
    
    
    102.7
    
    
    
    233.3
    
    
    
    546.6Less undivided interest
    
    
    60.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper sales from own mines on a
consolidated basis
    
    
    340.0
    
    
    
    104.4
    
    
    
    82.8
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    672.5
    
    
    
    210.6
    
    
    
    102.7
    
    
    
    233.3
    
    
    
    546.6Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.1
    
    
    
    36.4
    
    
    
    114.3
    
    
    
    186.8Copper sales from own mines on a
pro rata basis
    
    
    340.0
    
    
    
    104.4
    
    
    
    82.8
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    672.5
    
    
    
    174.5
    
    
    
    66.3
    
    
    
    119.0
    
    
    
    359.8Total purchased copper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.1
    
    
    
    
    
    
    
    
    
    
    
    23.1Total copper sales on a consolidated basis
    
    
    340.0
    
    
    
    104.4
    
    
    
    82.8
    
    
    
    104.8
    
    
    
    40.5
    
    
    
    672.5
    
    
    
    233.7
    
    
    
    102.7
    
    
    
    233.3
    
    
    
    569.7($ in millions)Operating income (loss)
    
    $
    399.9
    
    
    
    389.8
    
    
    
    568.8
    
    
    
    (15.3
    )
    
    
    (209.1
    )
    
    
    1,134.1
    
    
    
    306.8
    
    
    
    209.8
    
    
    
    274.7
    
    
    
    791.3Special items and provisions, net
    
    
    (0.2
    )
    
    
    12.1
    
    
    
    1.2
    
    
    
    (64.5
    )
    
    
    (215.7
    )
    
    
    (267.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss) before special
items and provisions, net
    
    $
    400.1
    
    
    
    377.7
    
    
    
    567.6
    
    
    
    49.2
    
    
    
    6.6
    
    
    
    1,401.2
    
    
    
    306.8
    
    
    
    209.8
    
    
    
    274.7
    
    
    
    791.3




---



##### Table of Contents



68 PDMC Results By Reportable Segments
 U.S. Mines
    
    South American MinesChino/
    
    
    
    
    
    
    
    
    
    Candelaria/
    
    CerroMorenci
    
    Bagdad
    
    Sierrita
    
    Cobre
    
    Tyrone
    
    Subtotal
    
    Ojos del Salado
    
    Verde
    
    El Abra
    
    Subtotal2004Copper production (thousand short tons):Total production
    
    
    420.3
    
    
    
    110.1
    
    
    
    77.5
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    742.7
    
    
    
    230.9
    
    
    
    97.6
    
    
    
    240.3
    
    
    
    568.8Less undivided interest
    
    
    63.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper production on a consolidated basis
    
    
    357.3
    
    
    
    110.1
    
    
    
    77.5
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    679.7
    
    
    
    230.9
    
    
    
    97.6
    
    
    
    240.3
    
    
    
    568.8Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44.1
    
    
    
    17.1
    
    
    
    117.7
    
    
    
    178.9Copper production on a pro rata basis
    
    
    357.3
    
    
    
    110.1
    
    
    
    77.5
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    679.7
    
    
    
    186.8
    
    
    
    80.5
    
    
    
    122.6
    
    
    
    389.9Copper sales (thousand short tons):Total copper sales from own mines
    
    
    420.3
    
    
    
    111.9
    
    
    
    79.2
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    746.2
    
    
    
    233.5
    
    
    
    98.2
    
    
    
    240.8
    
    
    
    572.5Less undivided interest
    
    
    63.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper sales from own mines on a
consolidated basis
    
    
    357.3
    
    
    
    111.9
    
    
    
    79.2
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    683.2
    
    
    
    233.5
    
    
    
    98.2
    
    
    
    240.8
    
    
    
    572.5Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44.6
    
    
    
    17.2
    
    
    
    118.0
    
    
    
    179.8Copper sales from own mines on a
pro rata basis
    
    
    357.3
    
    
    
    111.9
    
    
    
    79.2
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    683.2
    
    
    
    188.9
    
    
    
    81.0
    
    
    
    122.8
    
    
    
    392.7Total purchased copper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37.1
    
    
    
    
    
    
    
    
    
    
    
    37.1Total copper sales on a consolidated basis
    
    
    357.3
    
    
    
    111.9
    
    
    
    79.2
    
    
    
    91.7
    
    
    
    43.1
    
    
    
    683.2
    
    
    
    270.6
    
    
    
    98.2
    
    
    
    240.8
    
    
    
    609.6($ in millions)Operating income (loss)
    
    $
    375.7
    
    
    
    174.9
    
    
    
    264.3
    
    
    
    57.6
    
    
    
    22.9
    
    
    
    895.4
    
    
    
    303.3
    
    
    
    130.0
    
    
    
    273.7
    
    
    
    707.0Special items and provisions, net
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (5.8
    )
    
    
    (7.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss) before special
items and provisions, net
    
    $
    376.3
    
    
    
    174.9
    
    
    
    264.3
    
    
    
    58.8
    
    
    
    28.7
    
    
    
    903.0
    
    
    
    303.3
    
    
    
    130.0
    
    
    
    273.7
    
    
    
    707.0




---



##### Table of Contents



69 PDMC Results By Reportable Segments
 Primary
    
    
    
    
    
    
    
    
    
    PDMCMolybdenum
    
    Manufacturing
    
    Sales
    
    Segments
    
    Other
    
    Total PDMC2006Copper production (thousand short tons):Total production
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    1,267.8
    
    
    
    12.1
    
    
    
    1,279.9Less undivided interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.2
    
    
    
    
    
    
    
    61.2Copper production on a consolidated basis
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    1,206.6
    
    
    
    12.1
    
    
    
    1,218.7Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212.4
    
    
    
    
    
    
    
    212.4Copper production on a pro rata basis
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    994.2
    
    
    
    12.1
    
    
    
    1,006.3Copper sales (thousand short tons):Total copper sales from own mines
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    1,263.5
    
    
    
    12.1
    
    
    
    1,275.6Less undivided interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.1
    
    
    
    
    
    
    
    61.1Copper sales from own mines on a consolidated basis
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    1,202.4
    
    
    
    12.1
    
    
    
    1,214.5Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211.4
    
    
    
    
    
    
    
    211.4Copper sales from own mines on a pro rata basis
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    991.0
    
    
    
    12.1
    
    
    
    1,003.1Total purchased copper
    
    
    
    
    
    
    364.1
    
    
    
    0.6
    
    
    
    367.8
    
    
    
    
    
    
    
    367.8Total copper sales on a consolidated basis
    
    
    
    
    
    
    369.7
    
    
    
    0.6
    
    
    
    1,570.2
    
    
    
    12.1
    
    
    
    1,582.3Molybdenum production (thousand pounds):Primary  Henderson
    
    
    37,071
    
    
    
    
    
    
    
    
    
    
    
    37,071
    
    
    
    
    
    
    
    37,071By-product:Bagdad
    
    
    10,300
    
    
    
    
    
    
    
    
    
    
    
    10,300
    
    
    
    
    
    
    
    10,300Sierrita
    
    
    19,974
    
    
    
    
    
    
    
    
    
    
    
    19,974
    
    
    
    
    
    
    
    19,974Chino
    
    
    814
    
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    
    
    
    
    814Total molybdenum production
    
    
    68,159
    
    
    
    
    
    
    
    
    
    
    
    68,159
    
    
    
    
    
    
    
    68,159Molybdenum sales (thousand pounds):Net Phelps Dodge share from own mines
    
    
    68,785
    
    
    
    
    
    
    
    
    
    
    
    68,785
    
    
    
    
    
    
    
    68,785Purchased molybdenum
    
    
    8,349
    
    
    
    
    
    
    
    
    
    
    
    8,349
    
    
    
    
    
    
    
    8,349Total molybdenum sales
    
    
    77,134
    
    
    
    
    
    
    
    
    
    
    
    77,134
    
    
    
    
    
    
    
    77,134($ in millions)Operating income (loss)
    
    $
    439.1
    
    
    
    (31.5
    )
    
    
    8.1
    
    
    
    4,589.3
    
    
    
    (223.6
    )
    
    
    4,365.7Special items and provisions, net
    
    
    6.9
    
    
    
    (2.3
    )
    
    
    
    
    
    
    (26.4
    )
    
    
    (19.2
    )
    
    
    (45.6
    )Operating income (loss) before special items and provisions, net
    
    $
    432.2
    
    
    
    (29.2
    )
    
    
    8.1
    
    
    
    4,615.7
    
    
    
    (204.4
    )
    
    
    4,411.3




---



##### Table of Contents



70 PDMC Results By Reportable Segments
 Primary
    
    
    
    
    
    
    
    
    
    PDMCMolybdenum
    
    Manufacturing
    
    Sales
    
    Segments
    
    Other
    
    Total PDMC2005Copper production (thousand short tons):Total production
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,273.2
    
    
    
    14.8
    
    
    
    1,288.0Less undivided interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.0
    
    
    
    
    
    
    
    60.0Copper production on a consolidated basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,213.2
    
    
    
    14.8
    
    
    
    1,228.0Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185.7
    
    
    
    
    
    
    
    185.7Copper production on a pro rata basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,027.5
    
    
    
    14.8
    
    
    
    1,042.3Copper sales (thousand short tons):Total copper sales from own mines
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,281.4
    
    
    
    17.0
    
    
    
    1,298.4Less undivided interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.0
    
    
    
    
    
    
    
    60.0Copper sales from own mines on a consolidated basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,221.4
    
    
    
    17.0
    
    
    
    1,238.4Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186.8
    
    
    
    
    
    
    
    186.8Copper sales from own mines on a pro rata basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,034.6
    
    
    
    17.0
    
    
    
    1,051.6Total purchased copper
    
    
    
    
    
    
    369.5
    
    
    
    18.1
    
    
    
    410.7
    
    
    
    
    
    
    
    410.7Total copper sales on a consolidated basis
    
    
    
    
    
    
    371.8
    
    
    
    18.1
    
    
    
    1,632.1
    
    
    
    17.0
    
    
    
    1,649.1Molybdenum production (thousand pounds):Primary  Henderson
    
    
    32,201
    
    
    
    
    
    
    
    
    
    
    
    32,201
    
    
    
    
    
    
    
    32,201By-product:Bagdad
    
    
    10,952
    
    
    
    
    
    
    
    
    
    
    
    10,952
    
    
    
    
    
    
    
    10,952Sierrita
    
    
    18,610
    
    
    
    
    
    
    
    
    
    
    
    18,610
    
    
    
    
    
    
    
    18,610Chino
    
    
    543
    
    
    
    
    
    
    
    
    
    
    
    543
    
    
    
    
    
    
    
    543Total molybdenum production
    
    
    62,306
    
    
    
    
    
    
    
    
    
    
    
    62,306
    
    
    
    
    
    
    
    62,306Molybdenum sales (thousand pounds):Net Phelps Dodge share from own mines
    
    
    59,947
    
    
    
    
    
    
    
    
    
    
    
    59,947
    
    
    
    
    
    
    
    59,947Purchased molybdenum
    
    
    12,830
    
    
    
    
    
    
    
    
    
    
    
    12,830
    
    
    
    
    
    
    
    12,830Total molybdenum sales
    
    
    72,777
    
    
    
    
    
    
    
    
    
    
    
    72,777
    
    
    
    
    
    
    
    72,777($ in millions)Operating income (loss)
    
    $
    324.3
    
    
    
    (148.1
    )
    
    
    1.7
    
    
    
    2,103.3
    
    
    
    (173.4
    )
    
    
    1,929.9Special items and provisions, net
    
    
    (0.8
    )
    
    
    (154.0
    )
    
    
    
    
    
    
    (421.9
    )
    
    
    (25.4
    )
    
    
    (447.3
    )Operating income (loss) before special items and provisions, net
    
    $
    325.1
    
    
    
    5.9
    
    
    
    1.7
    
    
    
    2,525.2
    
    
    
    (148.0
    )
    
    
    2,377.2




---



##### Table of Contents



71 PDMC Results By Reportable Segments
 Primary
    
    
    
    
    
    
    
    
    
    PDMCMolybdenum
    
    Manufacturing
    
    Sales
    
    Segments
    
    Other
    
    Total PDMC2004Copper production (thousand short tons):Total production
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,313.8
    
    
    
    9.8
    
    
    
    1,323.6Less undivided interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63.0
    
    
    
    
    
    
    
    63.0Copper production on a consolidated basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,250.8
    
    
    
    9.8
    
    
    
    1,260.6Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178.9
    
    
    
    
    
    
    
    178.9Copper production on a pro rata basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,071.9
    
    
    
    9.8
    
    
    
    1,081.7Copper sales (thousand short tons):Total copper sales from own mines
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,321.0
    
    
    
    10.9
    
    
    
    1,331.9Less undivided interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63.0
    
    
    
    
    
    
    
    63.0Copper sales from own mines on a consolidated basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,258.0
    
    
    
    10.9
    
    
    
    1,268.9Less minority participants shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179.8
    
    
    
    
    
    
    
    179.8Copper sales from own mines on a pro rata basis
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    1,078.2
    
    
    
    10.9
    
    
    
    1,089.1Total purchased copper
    
    
    
    
    
    
    394.0
    
    
    
    1.9
    
    
    
    433.0
    
    
    
    
    
    
    
    433.0Total copper sales on a consolidated basis
    
    
    
    
    
    
    396.3
    
    
    
    1.9
    
    
    
    1,691.0
    
    
    
    10.9
    
    
    
    1,701.9Molybdenum production (thousand pounds):Primary  Henderson
    
    
    27,520
    
    
    
    
    
    
    
    
    
    
    
    27,520
    
    
    
    
    
    
    
    27,520By-product:Bagdad
    
    
    7,910
    
    
    
    
    
    
    
    
    
    
    
    7,910
    
    
    
    
    
    
    
    7,910Sierrita
    
    
    22,041
    
    
    
    
    
    
    
    
    
    
    
    22,041
    
    
    
    
    
    
    
    22,041Chino
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Total molybdenum production
    
    
    57,489
    
    
    
    
    
    
    
    
    
    
    
    57,489
    
    
    
    
    
    
    
    57,489Molybdenum sales (thousand pounds):Net Phelps Dodge share from own mines
    
    
    63,108
    
    
    
    
    
    
    
    
    
    
    
    63,108
    
    
    
    
    
    
    
    63,108Purchased molybdenum
    
    
    12,844
    
    
    
    
    
    
    
    
    
    
    
    12,844
    
    
    
    
    
    
    
    12,844Total molybdenum sales
    
    
    75,952
    
    
    
    
    
    
    
    
    
    
    
    75,952
    
    
    
    
    
    
    
    75,952($ in millions)Operating income (loss)
    
    $
    103.3
    
    
    
    29.1
    
    
    
    4.1
    
    
    
    1,738.9
    
    
    
    (132.2
    )
    
    
    1,606.7Special items and provisions, net
    
    
    0.3
    
    
    
    (3.2
    )
    
    
    
    
    
    
    (10.5
    )
    
    
    (0.8
    )
    
    
    (11.3
    )Operating income (loss) before special items and provisions, net
    
    $
    103.0
    
    
    
    32.3
    
    
    
    4.1
    
    
    
    1,749.4
    
    
    
    (131.4
    )
    
    
    1,618.0




---



##### Table of Contents



Sales of Copper (U.S. and South America) and
Molybdenum
   2006
    
    2005
    
    2004U.S. Mining Operations (A)(C):Unaffiliated customers
    
    $
    6,879.1
    
    
    
    4,182.3
    
    
    
    3,518.5Intersegment elimination
    
    
    (1,412.2
    )
    
    
    (814.8
    )
    
    
    (663.7
    )5,466.9
    
    
    
    3,367.5
    
    
    
    2,854.8South American Mines (B)(C):Unaffiliated customers
    
    
    2,029.6
    
    
    
    977.1
    
    
    
    939.6Intersegment
    
    
    1,412.2
    
    
    
    814.8
    
    
    
    663.73,441.8
    
    
    
    1,791.9
    
    
    
    1,603.3Primary Molybdenum:Unaffiliated customers
    
    
    1,747.7
    
    
    
    1,938.1
    
    
    
    985.3Intersegment
    
    
    
    
    
    
    
    
    
    
    1,747.7
    
    
    
    1,938.1
    
    
    
    985.3Total PDMC:Unaffiliated customers
    
    $
    10,656.4
    
    
    
    7,097.5
    
    
    
    5,443.4
 
 (A)
    
    U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad,
Sierrita, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.(B)
    
    South American Mines comprised the following segments: Candelaria/Ojos del Salado, Cerro
Verde and El Abra.(C)
    
    For the year ended December 31, 2006, U.S. Mining Operations were negatively impacted by
pre-tax net copper pricing adjustments of approximately $1.0 billion associated with our
copper collar and copper put options. For the year ended December 31, 2005, U.S. Mining
Operations and South American Mines were negatively impacted by net copper pricing adjustments
of $277.7 million and $132.8 million, respectively, associated with our copper collar and copper
put options.   2006
    
    2005U.S. Mining Operations:Morenci
    
    $
    (552.4
    )
    
    
    (138.1
    )Bagdad
    
    
    (131.8
    )
    
    
    (42.4
    )Sierrita
    
    
    (112.9
    )
    
    
    (32.3
    )Chino
    
    
    (136.8
    )
    
    
    (40.7
    )Tyrone
    
    
    (50.8
    )
    
    
    (16.5
    )Manufacturing
    
    
    (5.1
    )
    
    
    (0.9
    )Other
    
    
    (19.1
    )
    
    
    (6.8
    )(1,008.9
    )
    
    
    (277.7
    )South American Mines:El Abra
    
    
    
    
    
    
    (132.8
    )$
    (1,008.9
    )
    
    
    (410.5
    )
 U.S.
Mining Operations  Sales
   South
American Mines  Sales
   Primary
Molybdenum  Sales




---



##### Table of Contents



Operating Income for Copper (U.S. and South America) and Molybdenum
     2006
    
    2005
    
    2004Segment operating income:U.S. Mining Operations (A)(C)
    
    $
    1,642.8
    
    
    
    814.3
    
    
    
    796.4South American Mines (B)(C)
    
    
    2,283.8
    
    
    
    791.3
    
    
    
    707.0Primary Molybdenum
    
    
    439.1
    
    
    
    324.3
    
    
    
    103.3$
    4,365.7
    
    
    
    1,929.9
    
    
    
    1,606.7Special, pre-tax items and provisions, net:U.S. Mining Operations (A)
    
    $
    (52.5
    )
    
    
    (446.5
    )
    
    
    (11.6
    )South American Mines (B)
    
    
    
    
    
    
    
    
    
    
    Primary Molybdenum
    
    
    6.9
    
    
    
    (0.8
    )
    
    
    0.3$
    (45.6
    )
    
    
    (447.3
    )
    
    
    (11.3
    )Segment operating income excluding
special items and provisions, net:U.S. Mining Operations (A)(C)
    
    $
    1,695.3
    
    
    
    1,260.8
    
    
    
    808.0South American Mines (B)(C)
    
    
    2,283.8
    
    
    
    791.3
    
    
    
    707.0Primary Molybdenum
    
    
    432.2
    
    
    
    325.1
    
    
    
    103.0$
    4,411.3
    
    
    
    2,377.2
    
    
    
    1,618.0
 
 (A)
    
    U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad,
Sierrita, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.(B)
    
    South American Mines comprised the following segments: Candelaria/Ojos del Salado, Cerro
Verde and El Abra.(C)
    
    For the year ended December 31, 2006, U.S. Mining Operations were negatively impacted by
pre-tax net copper pricing adjustments of approximately $1.0 billion associated with our
copper collar and copper put options. For the year ended December 31, 2005, U.S. Mining Operations
and South American Mines were negatively impacted by net copper pricing adjustments of $277.7
million and $132.8 million, respectively, associated with our copper collar and copper put
options.  U.S.
Mining Operations  Operating Income
  Morenci
Segment  Operating Income




---



##### Table of Contents



Bagdad
Segment  Operating Income
    Sierrita
Segment  Operating Income
    Chino/Cobre
Segment  Operating Income (Loss)




---



##### Table of Contents



Tyrone
Segment  Operating Income (Loss)
    Manufacturing
Segment  Operating Income (Loss)
     Sales
Segment  Operating Income
    PDMC
Other  Operating Loss




---



##### Table of Contents



South
American Mines  Operating Income
  Candelaria/Ojos
del Salado Segment  Operating Income
     Cerro
Verde Segment  Operating Income




---



##### Table of Contents



El
Abra Segment  Operating Income
    Primary
Molybdenum  Operating Income
    Metals Week
 i.e Metals Week Ryans Notes Metal Bulletin i.e.,




---



##### Table of Contents



Curtailed Properties
        
    
    Cobre mining and milling operations have remained
curtailed since their temporary shutdown in March 1999, with
the exception of limited mining activities. Permitting was
initiated in 2005 to optimize future production with Chinos
mining operations.
    
    The Miami mine has remained curtailed since its temporary
shutdown in January 2002 as a result of then-current economic
conditions. The Miami SX/EW operations continued to produce
copper from residual leaching as of year-end 2006.
  PDMC
 Other Matters
 Cerro Verde




---



##### Table of Contents



79     Safford
    Tenke Fungurume




---



##### Table of Contents



RESULTS OF PHELPS DODGE INDUSTRIES
      2006
    
    2005
    
    2004Sales and other operating revenues to
unaffiliated customers
    
    $
    1,254.0
    
    
    
    1,189.6
    
    
    
    971.8Operating income
    
    $
    57.6
    
    
    
    14.6
    
    
    
    18.8Operating income before special items
and provisions, net
    
    $
    73.4
    
    
    
    33.2
    
    
    
    30.2Minority interests in consolidated subsidiaries
    
    $
    (7.5
    )
    
    
    (5.5
    )
    
    
    (4.3
    )
 Wire
and Cable  Sales
   Wire
and Cable  Operating Income
        2006
    
    2005
    
    2004Environmental provisions, net
    
    $
    
    
    
    
    (2.2
    )
    
    
    (0.3
    )Asset impairment charges
    
    
    (5.6
    )
    
    
    (2.5
    )
    
    
    (0.6
    )Dissolution of international Wire and Cable entity
    
    
    (1.2
    )
    
    
    
    
    
    
    Restructuring programs/closures
    
    
    
    
    
    
    (0.7
    )
    
    
    (10.5
    )Sale of North American magnet wire assets:Loss on disposal
    
    
    (1.0
    )
    
    
    
    
    
    
    Transaction and employee-related costs
    
    
    (4.1
    )
    
    
    (7.8
    )
    
    
    Asset impairment charges
    
    
    
    
    
    
    (5.4
    )
    
    
    Sale of HPC:Loss on disposal
    
    
    (1.0
    )
    
    
    
    
    
    
    Transaction and employee-related costs
    
    
    (2.9
    )
    
    
    
    
    
    
    Special, pre-tax items
    
    $
    (15.8
    )
    
    
    (18.6
    )
    
    
    (11.4
    )
 
 DISCONTINUED OPERATIONS




---



##### Table of Contents



2006
    
    2005
    
    2004Sales and other operating revenues
    
    $
    179.8
    
    
    
    743.3
    
    
    
    674.1Income from discontinued operations before
taxes and loss on disposal
    
    $
    17.0
    
    
    
    40.4
    
    
    
    33.7Loss on disposal, including transaction and
employee-related costs
    
    
    (30.3
    )
    
    
    (94.8
    )
    
    
    Benefit (provision) for taxes on income
    
    
    (4.8
    )
    
    
    37.0
    
    
    
    (11.0
    )Income (loss) from discontinued operations
    
    $
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7
  
 OTHER MATTERS RELATING TO THE
CONSOLIDATED STATEMENT OF INCOME
 Cost of Products Sold
   Selling and General Administrative Expense
   Exploration and Research Expense
   Interest Expense, Net
    Early Debt Extinguishment Costs




---



##### Table of Contents



Inco Termination Fee
   Gain on Sale of Cost-Basis Investment
  Change in Interest Gains
    Miscellaneous Income and Expense, Net




---



##### Table of Contents



83
  Provision for Taxes on Income




---



##### Table of Contents



84 Minority Interests in Consolidated Subsidiaries
   Cumulative Effect of Accounting Change
  Pensions and Other Postretirement Benefits
       
 CHANGES IN FINANCIAL CONDITION; CAPITALIZATION
 Cash and Cash Equivalents




---



##### Table of Contents



85   2006
    
    2005U.S. operations:Phelps Dodge*
    
    $
    3,856.5
    
    
    
    1,103.9Minority participants shares
    
    
    0.4
    
    
    
    0.43,856.9
    
    
    
    1,104.3International operations:Phelps Dodge**
    
    
    645.0
    
    
    
    571.3Minority participants shares**
    
    
    470.9
    
    
    
    261.91,115.9
    
    
    
    833.2Total consolidated cash
    
    $
    4,972.8
    
    
    
    1,937.5
 
 *
    
    At December 31, 2006 and 2005, U.S. operations included restricted cash of $18.7 million and
$9.4 million, respectively.**
    
    At December 31, 2006 and 2005, international operations included restricted cash of $6.7
million and $11.4 million, respectively, of which $5.0 million was associated with minority
participants shares at December 31, 2005.   2006
    
    2005
    
    2004Cash provided by:Operating activities:Cash flow from operations
    
    $
    5,243.4
    
    
    
    2,743.4
    
    
    
    1,842.7Changes in working capital
    
    
    (144.5
    )
    
    
    (553.0
    )
    
    
    (127.3
    )Contributions to Master Trust pension
plans and VEBA trusts
    
    
    
    
    
    
    (450.0
    )
    
    
    (85.4
    )Other operating, net
    
    
    (19.7
    )
    
    
    29.3
    
    
    
    70.1Investing activities:Capital expenditures and investments in
subsidiaries
    
    
    (1,187.8
    )
    
    
    (698.2
    )
    
    
    (317.3
    )Capitalized interest
    
    
    (54.4
    )
    
    
    (17.6
    )
    
    
    (1.0
    )Proceeds from the sales of Columbian
Chemicals, HPC and Magnet Wire
North American assets
    
    
    689.6
    
    
    
    
    
    
    
    Proceeds from the sale of SPCC
    
    
    
    
    
    
    451.6
    
    
    
    Global reclamation and remediation trust
contributions
    
    
    (300.0
    )
    
    
    (100.0
    )
    
    
    Other investing activities, net
    
    
    8.4
    
    
    
    (3.8
    )
    
    
    27.3Financing activities:Net increase (decrease) in debt
    
    
    196.8
    
    
    
    (394.4
    )
    
    
    (1,107.1
    )Dividends
    
    
    (1,434.3
    )
    
    
    (739.3
    )
    
    
    (71.5
    )Issuance of shares, net
    
    
    27.4
    
    
    
    55.9
    
    
    
    291.0Proceeds from issuance of Cerro Verde and
Ojos del Salado stock
    
    
    
    
    
    
    466.6
    
    
    
    Other financing, net
    
    
    (3.1
    )
    
    
    (74.6
    )
    
    
    (59.6
    )Cash included in assets held for sale
    
    
    
    
    
    
    (11.0
    )
    
    
    Exchange rate impact
    
    
    8.9
    
    
    
    11.7
    
    
    
    26.1Net increase in cash and cash equivalents
    
    $
    3,030.7
    
    
    
    716.6
    
    
    
    488.0
 Working Capital
  
    
    a $1.3 billion increase in accounts payable and accrued
expenses due to (i) higher accruals for hedging and price
protection programs (approximately $856 million) mostly
associated with mark-to-market adjustments for our 2006 copper
collars, (ii) higher accruals for capital spending
(approximately $180 million), (iii) a higher accrual for
voluntary contributions to the Arequipa region by Cerro Verde
(approximately $42 million  refer to pages 78 and 79 for
further discussion of contributions to the Arequipa region)
and (iv) net increases in asset retirement obligations
(approximately $43 million) and environmental reserves
(approximately $35 million) primarily resulting from the
reclassification of the current portion;
    
    a $250.6 million net decrease in assets held for sale and
liabilities related to assets held for sale due to the
completion of the sale of Columbian ($159.7 million) and the
North American magnet wire assets ($90.9 million) in the 2006
first quarter; and
    
    a $411.7 million increase in accrued income taxes
primarily due to higher foreign, federal and state income tax
provisions (approximately $1.2 billion), reduced by payments
(approximately $751 million); partially offset by
    
    a $236.8 million increase in accounts receivable
primarily due to (i) higher copper receivables (approximately
$167 million) mostly resulting from higher copper prices, (ii)
a higher income tax receivable for remaining proceeds
associated with the Inco termination fee (approximately $119
million) and (iii) higher Wire and Cable receivables
(approximately $58 million) mostly resulting from increased
metal prices and higher sales volumes; partially offset by a
decrease associated with the impact of forward prices on
provisionally priced copper sales (approximately $108
million); and
    
    a $470.3 million increase in current deferred tax assets
primarily due to the reclassification of non-current deferred
tax assets.
 Investing Activities




---



##### Table of Contents



86  Financing Activities and Liquidity




---



##### Table of Contents



87   Contractual Obligations and Commercial Commitments
  
 Less Than
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    5 YearsShort-term debt
    
    $
    33.7
    
    
    
    33.7
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    858.2
    
    
    
    88.1
    
    
    
    74.2
    
    
    
    158.7
    
    
    
    537.2Scheduled interest payment obligations*
    
    
    979.5
    
    
    
    61.2
    
    
    
    112.9
    
    
    
    99.9
    
    
    
    705.5Asset retirement obligations**
    
    
    106.0
    
    
    
    58.2
    
    
    
    45.2
    
    
    
    2.3
    
    
    
    0.3Take-or-pay contracts
    
    
    1,502.3
    
    
    
    1,295.5
    
    
    
    126.2
    
    
    
    49.4
    
    
    
    31.2Operating lease obligations
    
    
    73.6
    
    
    
    16.6
    
    
    
    28.8
    
    
    
    21.4
    
    
    
    6.8Mineral royalty obligations
    
    
    18.1
    
    
    
    1.9
    
    
    
    3.8
    
    
    
    3.0
    
    
    
    9.4Total contractual cash obligations***
    
    $
    3,571.4
    
    
    
    1,555.2
    
    
    
    391.1
    
    
    
    334.7
    
    
    
    1,290.4
 
 *
    
    Scheduled interest payment obligations were calculated using stated coupon rates for fixed
debt and interest rates applicable at December 31, 2006, for variable rate debt.**
    
    Asset retirement obligations only include our estimated contractual cash payments associated
with reclamation activities at certain sites for which our costs are estimable and the timing
of payments is reasonably determinable as of December 31, 2006. The timing and the amount of
these payments could change as a result of changes in regulatory requirements, changes in
scope of reclamation activities and as actual reclamation spending occurs. The table excludes
remaining cash payments of approximately $67 million that are expected to be incurred in
connection with accelerating certain closure projects, which are in the Companys discretion.
We have also excluded payments for reclamation activities that are expected to occur after
five years and the associated trust assets of approximately $514 million that have been
dedicated to funding those reclamation activities because a majority of these cash flows are
expected to occur over an extended period of time and are dependent upon the timing of the end
of the mine life, which is subject to revision.***
    
    This table excludes certain other obligations that we have reflected in our Consolidated
Balance Sheet, including estimated funding for pension obligations as the funding may vary
from year-to-year based on changes in the fair value of plan assets and actuarial assumptions.
For 2007, there is no minimum funding requirement for the Retirement Plan or for our U.S.
pension plans for bargained employees, but we expect to provide
funding of approximately $4
million for our international subsidiaries and supplemental retirement plan. Environmental
obligations and contingencies for which the timing of payments is not determinable are also
excluded.




---



##### Table of Contents



88 
 Less Than
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    5 YearsStandby letters of credit
    
    $
    186.3
    
    
    
    56.0
    
    
    
    9.0
    
    
    
    3.0
    
    
    
    118.3Corporate guarantees
    
    
    412.4
    
    
    
    0.8
    
    
    
    0.4
    
    
    
    
    
    
    
    411.2Sales performance guarantees
    
    
    74.5
    
    
    
    49.5
    
    
    
    24.5
    
    
    
    0.2
    
    
    
    0.3Surety bonds
    
    
    97.4
    
    
    
    2.1
    
    
    
    2.0
    
    
    
    
    
    
    
    93.3Asset pledges
    
    
    74.2
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    74.1Total commercial commitments
    
    $
    844.8
    
    
    
    108.5
    
    
    
    35.9
    
    
    
    3.2
    
    
    
    697.2
       Other Items that May Affect Liquidity




---



##### Table of Contents



89




---



##### Table of Contents



90     Freeport-McMoRan Merger
    Hedging Programs
  Copper Fixed-Price Rod Sales Hedging.
   Copper Price Protection Programs.




---



##### Table of Contents



91     Copper COMEX/LME Arbitrage Program.
  Metal Purchase Hedging.
  Gold and Silver Price Protection Program.




---



##### Table of Contents



92  Copper Quotational Period Swap Program.
  Diesel Fuel/Natural Gas Price Protection Program.
    Interest Rate Hedging.
 Foreign Currency Hedging.
  Environmental Matters




---



##### Table of Contents



93     2006
    
    2005
    
    2004Balance, beginning of year
    
    $
    367.9
    
    
    
    303.6
    
    
    
    317.2Additions to reserves*
    
    
    84.0
    
    
    
    116.0
    
    
    
    63.6Reductions in reserve estimates
    
    
    (1.6
    )
    
    
    (2.6
    )
    
    
    (4.7
    )Spending against reserves
    
    
    (72.4
    )
    
    
    (49.1
    )
    
    
    (72.5
    )Balance, end of year
    
    $
    377.9
    
    
    
    367.9
    
    
    
    303.6
 
 *
    
    2006 included $10.6 million not charged to expense that was associated with cash settlements
to Phelps Dodge from PRPs.   Chino AOC.
 Tohono Tailing and Evaporation Pond Remediation.




---



##### Table of Contents



94  Anniston Lead and PCB Sites. de minimis
 Laurel Hill Site.
   Other.
   Asset Retirement Obligations




---



##### Table of Contents



95   
 2006
    
    2005
    
    2004Balance, beginning of year
    
    $
    398.4
    
    
    
    275.2
    
    
    
    225.3Liability recorded upon adoption of FIN 47*
    
    
    
    
    
    
    17.9
    
    
    
    Additional liabilities from fully consolidating
El Abra and Candelaria*
    
    
    
    
    
    
    
    
    
    
    5.6New liabilities during the period
    
    
    5.3
    
    
    
    1.5
    
    
    
    1.8Accretion expense
    
    
    25.8
    
    
    
    22.8
    
    
    
    19.6Payments
    
    
    (64.3
    )
    
    
    (39.2
    )
    
    
    (28.9
    )Revisions in estimated cash flows
    
    
    78.9
    
    
    
    127.0
    
    
    
    51.6Foreign currency translation adjustments
    
    
    
    
    
    
    (0.6
    )
    
    
    0.2Transfer to long-term liabilities related
to assets held for sale
    
    
    
    
    
    
    (6.2
    )
    
    
    Other
    
    
    1.4
    
    
    
    
    
    
    
    Balance, end of year
    
    $
    445.5
    
    
    
    398.4
    
    
    
    275.2
 
 *
    
    Refer to Note 1, Summary of Significant Accounting Policies, for further discussion. 
 2006
    
    2005
    
    2004Gross balance, beginning of year
    
    $
    199.2
    
    
    
    196.3
    
    
    
    138.9Asset recorded upon adoption of FIN 47*
    
    
    
    
    
    
    8.4
    
    
    
    Additional assets from fully consolidating
El Abra and Candelaria*
    
    
    
    
    
    
    
    
    
    
    3.8New assets during the period
    
    
    5.3
    
    
    
    1.5
    
    
    
    1.8Revisions in estimated cash flows
    
    
    78.9
    
    
    
    127.0
    
    
    
    51.6Impairment of assets
    
    
    
    
    
    
    (129.7
    )
    
    
    Foreign currency translation adjustments
    
    
    
    
    
    
    (0.4
    )
    
    
    0.2Transfer to long-term assets held for sale
    
    
    
    
    
    
    (3.9
    )
    
    
    Gross balance, end of year
    
    
    283.4
    
    
    
    199.2
    
    
    
    196.3Less accumulated depreciation, depletion
and amortization**
    
    
    101.5
    
    
    
    86.4
    
    
    
    71.2Net balance, end of year
    
    $
    181.9
    
    
    
    112.8
    
    
    
    125.1
 
 *
    
    Refer to Note 1, Summary of Significant Accounting Policies, for further
discussion.**
    
    In 2005, accumulated depreciation, depletion and amortization included adjustments for the
adoption of FIN 47 ($4.0 million) and the transfer to long-term assets held for sale ($2.0
million); 2004 included adjustments of $1.4 million from fully consolidating El Abra and
Candelaria.




---



##### Table of Contents



96   Significant Arizona Environmental and Reclamation Programs




---



##### Table of Contents



97   Significant New Mexico Environmental and Reclamation Programs
        Significant Colorado Reclamation Programs
  Significant International Closure and Reclamation Programs
 Sociedad Minera Cerro Verde S.A.A.
   Other




---



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98 Other
          Other Matters
 New Accounting Pronouncements




---



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99  de minimis




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##### Table of Contents



100      
 CAPITAL OUTLAYS
   2006
    
    2005
    
    2004PDMC:Copper  U.S. Mining Operations (A)
    
    $
    499.0
    
    
    
    236.1
    
    
    
    170.9Copper  South American Mines (B)
    
    
    588.2
    
    
    
    347.4
    
    
    
    46.8Primary Molybdenum
    
    
    58.7
    
    
    
    27.3
    
    
    
    16.01,145.9
    
    
    
    610.8
    
    
    
    233.7PDI:Wire and Cable
    
    
    19.4
    
    
    
    19.5
    
    
    
    25.2Specialty Chemicals  Discontinued Operations
    
    
    9.4
    
    
    
    40.4
    
    
    
    31.028.8
    
    
    
    59.9
    
    
    
    56.2Corporate and Other
    
    
    16.4
    
    
    
    15.3
    
    
    
    13.7$
    1,191.1
    
    
    
    686.0
    
    
    
    303.6
 
 (A)
    
    U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad,
Sierrita, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.(B)
    
    South American Mines comprised the following reportable segments: Candelaria/Ojos del Salado,
Cerro Verde and El Abra. 
 INFLATION
  
 DIVIDENDS AND MARKET PRICE RANGES




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##### Table of Contents



101    
 QUARTERLY FINANCIAL DATA
  Quarter
    
    First
    
    Second
    
    Third
    
    Fourth2006Sales and other operating revenues
    
    $
    2,224.6
    
    
    
    2,992.2
    
    
    
    3,458.3
    
    
    
    3,235.3Operating income
    
    
    574.2
    
    
    
    963.3
    
    
    
    1,334.0
    
    
    
    1,355.4Operating income before special items
and provisions, net
    
    
    591.4
    
    
    
    976.2
    
    
    
    1,366.5
    
    
    
    1,386.4Income from continuing operations
    
    
    350.7
    
    
    
    471.4
    
    
    
    889.1
    
    
    
    1,324.7Income (loss) from discontinued
operations
    
    
    (16.9
    )
    
    
    0.3
    
    
    
    (1.1
    )
    
    
    (0.4
    )Net income
    
    
    333.8
    
    
    
    471.7
    
    
    
    888.0
    
    
    
    1,324.3Income from continuing operations,
excluding special items and
provisions, net (after taxes)
    
    
    366.8
    
    
    
    481.2
    
    
    
    852.8
    
    
    
    960.0Basic earnings per common share
from continuing operations
    
    
    1.73
    
    
    
    2.33
    
    
    
    4.39
    
    
    
    6.54Basic loss per common share
from discontinued operations
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    Basic earnings per common share
    
    
    1.65
    
    
    
    2.33
    
    
    
    4.38
    
    
    
    6.54Diluted earnings per common share
from continuing operations
    
    
    1.72
    
    
    
    2.32
    
    
    
    4.37
    
    
    
    6.50Diluted loss per common share
from discontinued operations
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    Diluted earnings per common share
    
    
    1.64
    
    
    
    2.32
    
    
    
    4.36
    
    
    
    6.50Stock prices*High**
    
    
    83.56
    
    
    
    102.80
    
    
    
    94.78
    
    
    
    124.75Low**
    
    
    65.14
    
    
    
    72.32
    
    
    
    75.08
    
    
    
    76.31Close
    
    
    80.53
    
    
    
    82.16
    
    
    
    84.70
    
    
    
    119.72
 
 *
    
    As reported in The Wall Street Journal.**
    
    The high and low stock prices for the 2006 first quarter have been adjusted to reflect the
March 10, 2006, two-for-one stock split.      Quarter
    
    First
    
    Second
    
    Third
    
    Fourth2005Sales and other operating revenues
    
    $
    1,886.5
    
    
    
    1,966.0
    
    
    
    2,179.0
    
    
    
    2,255.6Operating income
    
    
    535.8
    
    
    
    164.8
    
    
    
    560.3
    
    
    
    504.0Operating income before special items
and provisions, net
    
    
    534.9
    
    
    
    602.0
    
    
    
    605.3
    
    
    
    545.8Income from continuing operations
before cumulative effect of
accounting change
    
    
    377.4
    
    
    
    675.1
    
    
    
    360.1
    
    
    
    171.3Income (loss) from discontinued
operations
    
    
    9.3
    
    
    
    7.2
    
    
    
    6.0
    
    
    
    (39.9
    )Net income
    
    
    386.7
    
    
    
    682.3
    
    
    
    366.1
    
    
    
    121.3Income from continuing operations,
excluding special items and
provisions, net (after taxes)
    
    
    377.3
    
    
    
    449.3
    
    
    
    435.9
    
    
    
    322.8Basic earnings per common share from
continuing operations before cumulative
effect of accounting change**
    
    
    1.95
    
    
    
    3.49
    
    
    
    1.83
    
    
    
    0.85Basic earnings (loss) per common share
from discontinued operations**
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    (0.20
    )Basic
earnings per common share**
    
    
    2.00
    
    
    
    3.53
    
    
    
    1.86
    
    
    
    0.60Diluted earnings per common share from
continuing operations before cumulative
effect of accounting change**
    
    
    1.87
    
    
    
    3.34
    
    
    
    1.78
    
    
    
    0.84Diluted earnings (loss) per common share
from discontinued operations**
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    (0.19
    )Diluted
earnings per common share**
    
    
    1.92
    
    
    
    3.38
    
    
    
    1.81
    
    
    
    0.60Stock prices*High**
    
    
    54.56
    
    
    
    51.72
    
    
    
    66.23
    
    
    
    74.63Low**
    
    
    45.01
    
    
    
    39.10
    
    
    
    45.88
    
    
    
    57.10Close**
    
    
    50.87
    
    
    
    46.25
    
    
    
    64.97
    
    
    
    71.94
 
 *
    
    As reported in The Wall Street Journal.**
    
    Earnings per common share and stock prices for the 2005 quarterly periods have been adjusted
to reflect the March 10, 2006, two-for-one stock split.




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102




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##### Table of Contents



103 
 PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
   
 
 REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of Phelps Dodge;
    
    provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts
and expenditures of the Company are being made only in
accordance with authorizations of management and directors of
the Company; and
    
    provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of Phelps Dodges assets that could have a
material effect on the financial statements.
  Internal
Control-Integrated Framework




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##### Table of Contents



104 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   Consolidated financial statements and financial statement schedule
   Internal control over financial reporting
 Internal Control  Integrated Framework Internal
Control  Integrated Framework




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##### Table of Contents



Phelps Dodge Corporation
Consolidated Statement of Income
 For the years ended December 31,2006
    
    2005*
    
    2004*Sales and other operating revenues
    
    $
    11,910.4
    
    
    
    8,287.1
    
    
    
    6,415.2Operating costs and expensesCost of products sold (exclusive of items shown separately below)
    
    
    6,807.2
    
    
    
    5,281.8
    
    
    
    4,226.7Depreciation, depletion and amortization
    
    
    448.7
    
    
    
    441.8
    
    
    
    455.5Selling and general administrative expense
    
    
    207.0
    
    
    
    158.5
    
    
    
    140.1Exploration and research expense
    
    
    127.0
    
    
    
    117.0
    
    
    
    56.4Special items and provisions, net (see Note 3)
    
    
    93.6
    
    
    
    523.1
    
    
    
    61.67,683.5
    
    
    
    6,522.2
    
    
    
    4,940.3Operating income
    
    
    4,226.9
    
    
    
    1,764.9
    
    
    
    1,474.9Interest expense
    
    
    (73.0
    )
    
    
    (78.6
    )
    
    
    (123.2
    )Capitalized interest
    
    
    54.0
    
    
    
    16.3
    
    
    
    0.3Early debt extinguishment costs (see Note 15)
    
    
    
    
    
    
    (54.0
    )
    
    
    (43.2
    )Inco termination fee, net of expenses (see Note 25)
    
    
    435.1
    
    
    
    
    
    
    
    Gain on sale of cost-basis investment, net of expenses (see Note
4)
    
    
    
    
    
    
    438.4
    
    
    
    Change in interest gains, net of expenses (see Note 5)
    
    
    
    
    
    
    168.3
    
    
    
    Miscellaneous income and expense, net (see Note 7)
    
    
    190.9
    
    
    
    93.3
    
    
    
    45.3Income from continuing operations before taxes, minority interests in consolidated
subsidiaries, equity in net earnings (losses) of affiliated companies and cumulative
effect of accounting change
    
    
    4,833.9
    
    
    
    2,348.6
    
    
    
    1,354.1Provision for taxes on income (see Note 8)
    
    
    (1,010.2
    )
    
    
    (577.0
    )
    
    
    (131.3
    )Minority interests in consolidated subsidiaries
    
    
    (792.4
    )
    
    
    (190.4
    )
    
    
    (201.1
    )Equity in net earnings (losses) of affiliated companies
    
    
    4.6
    
    
    
    2.7
    
    
    
    1.9Income from continuing operations before cumulative effect of accounting change
    
    
    3,035.9
    
    
    
    1,583.9
    
    
    
    1,023.6Discontinued operations:Income (loss) from discontinued operations, net of taxes (see
Note 2)
    
    
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7Income before cumulative effect of accounting change
    
    
    3,017.8
    
    
    
    1,566.5
    
    
    
    1,046.3Cumulative effect of accounting change, net of taxes of $3.4 in 2005
    
    
    
    
    
    
    (10.1
    )
    
    
    Net income
    
    
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3Preferred stock dividends
    
    
    
    
    
    
    (6.8
    )
    
    
    (13.5
    )Net income applicable to common shares
    
    $
    3,017.8
    
    
    
    1,549.6
    
    
    
    1,032.8Weighted average number of common shares outstanding  basic
    
    
    202.4
    
    
    
    195.7
    
    
    
    186.7Basic earnings per common share:Income from continuing operations
    
    $
    15.00
    
    
    
    8.06
    
    
    
    5.41Income (loss) from discontinued operations
    
    
    (0.09
    )
    
    
    (0.09
    )
    
    
    0.12Cumulative effect of accounting change
    
    
    
    
    
    
    (0.05
    )
    
    
    Basic earnings per common share
    
    $
    14.91
    
    
    
    7.92
    
    
    
    5.53Weighted average number of common shares outstanding  diluted
    
    
    203.5
    
    
    
    202.5
    
    
    
    197.7Diluted earnings per common share:Income from continuing operations
    
    $
    14.92
    
    
    
    7.82
    
    
    
    5.18Income (loss) from discontinued operations
    
    
    (0.09
    )
    
    
    (0.08
    )
    
    
    0.11Cumulative effect of accounting change
    
    
    
    
    
    
    (0.05
    )
    
    
    Diluted earnings per common share
    
    $
    14.83
    
    
    
    7.69
    
    
    
    5.29
 
 *
    
    Weighted average number of common shares outstanding and earnings per common
share for 2005 and 2004 have been adjusted to reflect the March 10, 2006,
two-for-one stock
split (Refer to Note 16 for further discussion).




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##### Table of Contents



Phelps Dodge Corporation
Consolidated Balance Sheet
 December 31,
    
    December 31,2006
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,947.4
    
    
    
    1,916.7Restricted cash
    
    
    25.4
    
    
    
    20.8Accounts receivable, less allowance for doubtful accounts (2006 - $6.3; 2005 - $6.9)
    
    
    1,264.8
    
    
    
    1,028.0Mill and leach stockpiles
    
    
    90.8
    
    
    
    36.6Inventories
    
    
    356.0
    
    
    
    329.5Supplies
    
    
    247.9
    
    
    
    199.7Prepaid expenses and other current assets
    
    
    116.3
    
    
    
    83.6Deferred income taxes
    
    
    552.3
    
    
    
    82.0Assets held for sale
    
    
    
    
    
    
    373.8Current assets
    
    
    7,600.9
    
    
    
    4,070.7Investments and long-term receivables
    
    
    193.1
    
    
    
    142.6Property, plant and equipment, net
    
    
    5,873.5
    
    
    
    4,830.9Long-term mill and leach stockpiles
    
    
    181.8
    
    
    
    133.3Deferred income taxes
    
    
    15.8
    
    
    
    99.6Goodwill
    
    
    12.5
    
    
    
    22.3Intangible assets, net
    
    
    7.0
    
    
    
    7.5Long-term assets held for sale
    
    
    
    
    
    
    431.4Trust assets
    
    
    588.3
    
    
    
    258.4Other assets and deferred charges
    
    
    159.4
    
    
    
    361.3$
    14,632.3
    
    
    
    10,358.0LiabilitiesCurrent liabilities:Short-term debt
    
    $
    33.7
    
    
    
    14.3Current portion of long-term debt
    
    
    88.1
    
    
    
    2.5Accounts payable and accrued expenses
    
    
    2,705.8
    
    
    
    1,445.7Accrued income taxes
    
    
    435.3
    
    
    
    23.6Liabilities related to assets held for sale
    
    
    
    
    
    
    123.2Current liabilities
    
    
    3,262.9
    
    
    
    1,609.3Long-term debt
    
    
    770.1
    
    
    
    677.7Deferred income taxes
    
    
    768.6
    
    
    
    558.0Long-term liabilities related to assets held for sale
    
    
    
    
    
    
    61.3Other liabilities and deferred credits
    
    
    890.7
    
    
    
    934.25,692.3
    
    
    
    3,840.5Commitments and contingencies (see Notes 8, 20, 21 and 22)Minority interests in consolidated subsidiaries
    
    
    1,249.6
    
    
    
    915.9Shareholders equity*Common shares, par value $6.25; 300.0 shares authorized; 204.0 outstanding
(2005 - 203.2) after deducting 16.0 shares (2005 - 16.7) held in treasury, at cost
    
    
    1,275.1
    
    
    
    635.1Capital in excess of par value
    
    
    1,372.7
    
    
    
    1,998.8Retained earnings
    
    
    5,221.4
    
    
    
    3,158.8Accumulated other comprehensive loss
    
    
    (178.8
    )
    
    
    (154.5
    )Other
    
    
    
    
    
    
    (36.6
    )7,690.4
    
    
    
    5,601.6$
    14,632.3
    
    
    
    10,358.0
 
 *
    
    Refer to Note 16 for discussion of the March 10, 2006, two-for-one stock split.




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##### Table of Contents



Phelps Dodge Corporation
Consolidated Statement of Cash Flows  (in millions)
 For the years ended December 31,2006
    
    2005
    
    2004Operating activitiesNet income
    
    $
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3Adjustments to reconcile net income to net cash provided by operating activities:Losses on copper collars and copper put options (realized but unpaid and unrealized)
    
    
    1,008.9
    
    
    
    410.5
    
    
    
    Depreciation, depletion and amortization
    
    
    449.0
    
    
    
    490.9
    
    
    
    507.1Deferred income tax provision (benefit)
    
    
    (147.0
    )
    
    
    16.4
    
    
    
    (17.8
    )Equity in net earnings (losses) of affiliated companies, net of dividends received
    
    
    (1.9
    )
    
    
    (0.1
    )
    
    
    2.2Gain on sale of cost-basis investment, net of expenses
    
    
    
    
    
    
    (438.4
    )
    
    
    Change in interest gains, net of expenses
    
    
    
    
    
    
    (168.3
    )
    
    
    Special items and provisions, net
    
    
    93.6
    
    
    
    612.1
    
    
    
    59.9Early debt extinguishment costs
    
    
    
    
    
    
    54.0
    
    
    
    43.2Minority interests in consolidated subsidiaries
    
    
    792.7
    
    
    
    190.6
    
    
    
    201.8Loss on disposition of discontinued operations
    
    
    30.3
    
    
    
    5.8
    
    
    
    Cumulative effect of accounting changes
    
    
    
    
    
    
    13.5
    
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (236.1
    )
    
    
    (399.0
    )
    
    
    (276.2
    )Repayment of securitized accounts receivable
    
    
    
    
    
    
    (85.0
    )
    
    
    Mill and leach stockpiles
    
    
    (50.1
    )
    
    
    (10.5
    )
    
    
    1.0Inventories
    
    
    (0.7
    )
    
    
    (46.5
    )
    
    
    (0.4
    )Supplies
    
    
    (48.8
    )
    
    
    (33.8
    )
    
    
    (23.6
    )Prepaid expenses and other current assets
    
    
    (36.4
    )
    
    
    (35.2
    )
    
    
    (6.7
    )Interest payable
    
    
    1.1
    
    
    
    (3.8
    )
    
    
    (8.2
    )Other accounts payable
    
    
    21.7
    
    
    
    159.6
    
    
    
    212.1Accrued income taxes
    
    
    401.9
    
    
    
    (0.9
    )
    
    
    17.5Realized losses on 2005 copper collars
    
    
    (187.2
    )
    
    
    
    
    
    
    Other accrued expenses
    
    
    (9.9
    )
    
    
    (97.9
    )
    
    
    (42.8
    )Master Trust pension plan contributions
    
    
    
    
    
    
    (250.0
    )
    
    
    (85.4
    )VEBA trust contributions
    
    
    
    
    
    
    (200.0
    )
    
    
    Other operating, net
    
    
    (19.7
    )
    
    
    29.3
    
    
    
    70.1Net cash provided by operating activities
    
    
    5,079.2
    
    
    
    1,769.7
    
    
    
    1,700.1Investing activitiesCapital outlays
    
    
    (1,191.1
    )
    
    
    (686.0
    )
    
    
    (303.6
    )Capitalized interest
    
    
    (54.4
    )
    
    
    (17.6
    )
    
    
    (1.0
    )Investments in subsidiaries and other, net of cash received
    
    
    3.3
    
    
    
    (12.2
    )
    
    
    (13.7
    )Proceeds from the sale of Columbian Chemicals
    
    
    505.2
    
    
    
    
    
    
    
    Proceeds from the sale of Magnet Wire North American assets
    
    
    136.5
    
    
    
    
    
    
    
    Proceeds from the sale of High Performance Conductors
    
    
    47.9
    
    
    
    
    
    
    
    Proceeds from sale of cost-basis investments, net of expenses
    
    
    
    
    
    
    451.6
    
    
    
    Proceeds from other asset dispositions
    
    
    25.1
    
    
    
    18.2
    
    
    
    26.9Restricted cash
    
    
    (4.6
    )
    
    
    (20.8
    )
    
    
    Global reclamation and remediation trust contributions
    
    
    (300.0
    )
    
    
    (100.0
    )
    
    
    Other investing, net
    
    
    (12.1
    )
    
    
    (1.2
    )
    
    
    0.4Net cash used in investing activities
    
    
    (844.2
    )
    
    
    (368.0
    )
    
    
    (291.0
    )Financing activitiesNet increase (decrease) in short-term debt
    
    
    17.4
    
    
    
    (61.7
    )
    
    
    1.5Proceeds from issuance of debt
    
    
    182.0
    
    
    
    21.6
    
    
    
    150.0Payment of debt
    
    
    (2.6
    )
    
    
    (354.3
    )
    
    
    (1,258.6
    )Common dividends
    
    
    (975.5
    )
    
    
    (630.7
    )
    
    
    (47.5
    )Preferred dividends
    
    
    
    
    
    
    (10.1
    )
    
    
    (13.5
    )Minority interest dividends
    
    
    (458.8
    )
    
    
    (98.5
    )
    
    
    (10.5
    )Issuance of shares, net
    
    
    27.4
    
    
    
    55.9
    
    
    
    291.0Debt issue costs
    
    
    (3.1
    )
    
    
    (18.8
    )
    
    
    (7.0
    )Proceeds from issuance of Cerro Verde and Ojos del Salado stock, net of expenses
    
    
    
    
    
    
    466.6
    
    
    
    Other financing, net
    
    
    
    
    
    
    (55.8
    )
    
    
    (52.6
    )Net cash used in financing activities
    
    
    (1,213.2
    )
    
    
    (685.8
    )
    
    
    (947.2
    )Cash included in assets held for sale
    
    
    
    
    
    
    (11.0
    )
    
    
    Effect of exchange rate impact on cash and cash equivalents
    
    
    8.9
    
    
    
    11.7
    
    
    
    26.1Increase in cash and cash equivalents
    
    
    3,030.7
    
    
    
    716.6
    
    
    
    488.0Increase at beginning of 2004 from fully consolidating El Abra and Candelaria
    
    
    
    
    
    
    
    
    
    
    28.3Cash and cash equivalents at beginning of year
    
    
    1,916.7
    
    
    
    1,200.1
    
    
    
    683.8Cash and cash equivalents at end of year
    
    $
    4,947.4
    
    
    
    1,916.7
    
    
    
    1,200.1




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##### Table of Contents



Phelps Dodge Corporation
Consolidated Statement of Shareholders Equity  (in millions)
 AccumulatedCommon Shares
    
    Preferred Shares
    
    Capital in
    
    
    
    
    
    OtherNumber
    
    At Par
    
    Number
    
    At Par
    
    Excess of
    
    Retained
    
    Comprehensive
    
    
    
    
    
    Shareholdersof Shares
    
    Value
    
    of Shares
    
    Value
    
    Par Value
    
    Earnings
    
    Income (Loss)*
    
    Other
    
    EquityBalance at January 1, 2004
    
    
    91.0
    
    
    $
    568.5
    
    
    
    2.0
    
    
    $
    2.0
    
    
    $
    1,642.5
    
    
    $
    1,254.6
    
    
    $
    (393.5
    )
    
    $
    (10.3
    )
    
    $
    3,063.8Stock options exercised including tax benefit
    
    
    4.7
    
    
    
    29.6
    
    
    
    
    
    
    
    
    
    
    
    248.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    278.4Restricted shares issued/cancelled, net
    
    
    0.2
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    16.8
    
    
    
    
    
    
    
    
    
    
    
    (10.2
    )
    
    
    8.1Directors stock compensation
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2Common shares purchased
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (2.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.0
    )Dividends on preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.5
    )
    
    
    
    
    
    
    
    
    
    
    (13.5
    )Dividends on common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47.5
    )
    
    
    
    
    
    
    
    
    
    
    (47.5
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,046.3
    
    
    
    
    
    
    
    
    
    
    
    1,046.3Other comprehensive income (loss), net of tax:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57.9
    
    
    
    
    
    
    
    57.9Net gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    9.9Other investment adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.1
    
    
    
    
    
    
    
    7.1Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65.7
    )
    
    
    
    
    
    
    (65.7
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    9.3Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,055.6Balance at December 31, 2004
    
    
    95.9
    
    
    
    599.5
    
    
    
    2.0
    
    
    
    2.0
    
    
    
    1,906.4
    
    
    
    2,239.9
    
    
    
    (384.2
    )
    
    
    (20.5
    )
    
    
    4,343.1Stock options exercised including tax benefit
    
    
    1.3
    
    
    
    8.1
    
    
    
    
    
    
    
    
    
    
    
    96.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.3Restricted shares issued/cancelled, net
    
    
    0.3
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    26.6
    
    
    
    
    
    
    
    
    
    
    
    (16.1
    )
    
    
    12.2Common shares purchased
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (3.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )Conversion of preferred shares
    
    
    4.2
    
    
    
    26.0
    
    
    
    (2.0
    )
    
    
    (2.0
    )
    
    
    (24.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends on preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.8
    )
    
    
    
    
    
    
    
    
    
    
    (6.8
    )Dividends on common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (630.7
    )
    
    
    
    
    
    
    
    
    
    
    (630.7
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,556.4
    
    
    
    
    
    
    
    
    
    
    
    1,556.4Other comprehensive income (loss), net of tax:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.2
    
    
    
    
    
    
    
    21.2Other investment adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.7
    
    
    
    
    
    
    
    4.7Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203.4
    
    
    
    
    
    
    
    203.4Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229.7
    
    
    
    
    
    
    
    229.7Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,786.1Balance at December 31, 2005
    
    
    101.6
    
    
    $
    635.1
    
    
    
    
    
    
    $
    
    
    
    $
    1,998.8
    
    
    $
    3,158.8
    
    
    $
    (154.5
    )
    
    $
    (36.6
    )
    
    $
    5,601.6
 
 *
    
    As of December 31, 2004, this balance comprised $229.6 million of cumulative minimum pension liability adjustments, $171.8 million of cumulative translation adjustments and $0.7 million of
cumulative other investment adjustments; partially offset by $16.8 million of cumulative unrealized gains on securities and $1.1 million of cumulative unrealized gains on deriative instruments.
As of December 31, 2005, this balance comprised $171.9 million of cumulative translation adjustments, $26.2 million of cumulative minimum pension liability adjustments and $0.2 million of
cumulative other investment adjustments; partially offset by $38.0 million of cumulative unrealized gains on securities and $5.8 million of cumulative unrealized gains on derivative instruments.




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##### Table of Contents



Phelps Dodge Corporation
Consolidated Statement of Shareholders Equity  (in millions)
 AccumulatedCommon Shares
    
    Preferred Shares
    
    Capital in
    
    
    
    
    
    OtherNumber
    
    At Par
    
    Number
    
    At Par
    
    Excess of
    
    Retained
    
    Comprehensive
    
    
    
    
    
    Shareholdersof Shares
    
    Value
    
    of Shares
    
    Value
    
    Par Value
    
    Earnings
    
    Income (Loss)*
    
    Other
    
    EquityBalance at December 31, 2005
    
    
    101.6
    
    
    $
    635.1
    
    
    
    
    
    
    $
    
    
    
    $
    1,998.8
    
    
    $
    3,158.8
    
    
    $
    (154.5
    )
    
    $
    (36.6
    )
    
    $
    5,601.6Cumulative effect adjustment (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.8
    
    
    
    
    
    
    
    
    
    
    
    19.8Transition adjustment (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36.6
    )
    
    
    
    
    
    
    
    
    
    
    36.6
    
    
    
    Stock split (3)
    
    
    101.6
    
    
    
    635.1
    
    
    
    
    
    
    
    
    
    
    
    (635.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised, including tax benefit
    
    
    0.7
    
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    28.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.3Restricted shares issued/cancelled, net,
including tax benefit
    
    
    0.1
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    18.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.0Directors stock compensation
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5Common shares purchased
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.3
    )Dividends on common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (975.0
    )
    
    
    
    
    
    
    
    
    
    
    (975.0
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,017.8
    
    
    
    
    
    
    
    
    
    
    
    3,017.8Other comprehensive income (loss), net of tax:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.8
    
    
    
    
    
    
    
    38.8Net loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )
    
    
    
    
    
    
    (4.0
    )Other investment adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.0
    
    
    
    
    
    
    
    19.0Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.7
    
    
    
    
    
    
    
    15.7Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69.7
    
    
    
    
    
    
    
    69.7Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,087.5Adjustment for adoption of SFAS No. 158,
net of tax: (4)Net actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111.4
    )
    
    
    
    
    
    
    (111.4
    )Prior service benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    
    
    
    
    7.5Transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Reversal of minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.5
    
    
    
    
    
    
    
    10.5Adjustment for adoption of SFAS No. 158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94.0
    )
    
    
    
    
    
    
    (94.0
    )Balance at December 31, 2006
    
    
    204.0
    
    
    $
    1,275.1
    
    
    
    
    
    
    $
    
    
    
    $
    1,372.7
    
    
    $
    5,221.4
    
    
    $
    (178.8
    )
    
    $
    
    
    
    $
    7,690.4
 
 *
    
    As of December 31, 2006, this balance comprised $133.1 million of cumulative translation adjustments, $111.4 million of cumulative net actuarial losses associated with pension and other
postretirement plans, and $0.6 million of cumulative transition obligation associated with pension plans; partially offset by $57.0 million of cumulative unrealized gains on securities, $7.5 million of
cumulative prior service benefits associated with pension and other postretirement plans, and $1.8 million of cumulative unrealized gains on derivative instruments.(1)
    
    Refer to Note 1 for discussion of the adoption of EITF Issue No. 04-6.(2)
    
    Refer to Note 17 for discussion of the adoption of SFAS No. 123-R.(3)
    
    Refer to Note 16 for discussion of the March 10, 2006, two-for-one stock split.(4)
    
    Refer to Notes 18 and 19 for discussion of the adoption of SFAS No. 158.




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##### Table of Contents



NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies
 Basis of Consolidation.
   Stock Split.
 Managements Estimates and Assumptions.
 Foreign Currency Translation.
 Statement of Cash Flows.
 Sale of Eligible Trade Accounts Receivable.
  Mill Stockpiles, Leach Stockpiles, Inventories and Supplies.




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##### Table of Contents



111      Mill stockpiles
    Leach stockpiles
      Work-in-process
   Finished goods
   Raw materials




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##### Table of Contents



112 Property, Plant and Equipment.
        Environmental Expenditures.
 Asset Retirement Obligations.




---



##### Table of Contents



113  Goodwill.
 Intangible Assets.
 Impairments.
 Revenue Recognition.
  i.e. Metals Week Ryans Notes Metal Bulletin i.e.
 Shipping and Handling Fees and Costs.
 Issuances of Subsidiary Stock.
 Hedging Programs.




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##### Table of Contents



114  Income Taxes.
  Pension Plans.
 Postretirement Benefits Other Than Pensions.
  Postemployment Benefits.
 Share-Based Compensation.




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##### Table of Contents



115  Earnings Per Share.
 2006
    
    2005*
    
    2004*Basic Earnings Per Common Share ComputationNumerator:Income from continuing operations before
cumulative effect of accounting change
    
    $
    3,035.9
    
    
    
    1,583.9
    
    
    
    1,023.6Income (loss) from discontinued operations
    
    
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7Cumulative effect of accounting change
    
    
    
    
    
    
    (10.1
    )
    
    
    Net income
    
    
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3Preferred stock dividends
    
    
    
    
    
    
    (6.8
    )
    
    
    (13.5
    )Net income applicable to common shares
    
    $
    3,017.8
    
    
    
    1,549.6
    
    
    
    1,032.8Denominator:Weighted average common shares outstanding
    
    
    202.4
    
    
    
    195.7
    
    
    
    186.7Basic earnings per common share:Income from continuing operations
    
    $
    15.00
    
    
    
    8.06
    
    
    
    5.41Income (loss) from discontinued operations
    
    
    (0.09
    )
    
    
    (0.09
    )
    
    
    0.12Cumulative effect of accounting change
    
    
    
    
    
    
    (0.05
    )
    
    
    Basic earnings per common share
    
    $
    14.91
    
    
    
    7.92
    
    
    
    5.53Diluted Earnings Per Common Share ComputationNumerator:Income from continuing operations before
cumulative effect of accounting change
    
    $
    3,035.9
    
    
    
    1,583.9
    
    
    
    1,023.6Income (loss) from discontinued operations
    
    
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7Cumulative effect of accounting change
    
    
    
    
    
    
    (10.1
    )
    
    
    Net income applicable to common shares
    
    $
    3,017.8
    
    
    
    1,556.4
    
    
    
    1,046.3Denominator:Weighted average common shares outstanding
    
    
    202.4
    
    
    
    195.7
    
    
    
    186.7Weighted average employee stock options
    
    
    0.3
    
    
    
    0.7
    
    
    
    1.9Weighted average restricted stock issued
to employees
    
    
    0.8
    
    
    
    0.9
    
    
    
    0.8Weighted average mandatory convertible
preferred shares
    
    
    
    
    
    
    5.2
    
    
    
    8.3Total weighted average common shares
outstanding  diluted
    
    
    203.5
    
    
    
    202.5
    
    
    
    197.7Diluted earnings per common share:Income from continuing operations
    
    $
    14.92
    
    
    
    7.82
    
    
    
    5.18Income (loss) from discontinued operations
    
    
    (0.09
    )
    
    
    (0.08
    )
    
    
    0.11Cumulative effect of accounting change
    
    
    
    
    
    
    (0.05
    )
    
    
    Diluted earnings per common share
    
    $
    14.83
    
    
    
    7.69
    
    
    
    5.29
 
 *
    
    Weighted average shares and earnings per common share have been adjusted to reflect the March
10, 2006, two-for-one stock split. (Refer to Note 16, Shareholders Equity, for further
discussion.)  2006
    
    2005
    
    2004Outstanding options
    
    
    
    
    
    
    
    
    
    
    0.3Average option exercise price
    
    $
    
    
    
    
    
    
    
    
    38.22
 New Accounting Pronouncements.




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116      de minimis




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##### Table of Contents



117    Reclassification.
 2. Divestitures
 Columbian Chemicals Company
    2006
    
    2005
    
    2004Sales and other operating revenues
    
    $
    179.8
    
    
    
    743.3
    
    
    
    674.1Income from discontinued operations
before taxes and loss on disposal
    
    $
    17.0
    
    
    
    40.4
    
    
    
    33.7Loss on disposal, including transaction and
employee-related costs
    
    
    (30.3
    )
    
    
    (94.8
    )
    
    
    Benefit (provision) for taxes on income
    
    
    (4.8
    )
    
    
    37.0
    
    
    
    (11.0
    )Income (loss) from discontinued operations
    
    $
    (18.1
    )
    
    
    (17.4
    )
    
    
    22.7
  Current assets:Cash and cash equivalents
    
    $
    11.0Accounts receivable, net
    
    
    163.9Inventories
    
    
    70.9Supplies
    
    
    15.7Prepaid expenses and other current assets
    
    
    12.1$
    273.6Property, plant and equipment, net
    
    $
    367.2Deferred income taxes
    
    
    4.7Goodwill
    
    
    2.0Other assets and deferred charges
    
    
    2.9$
    376.8Current liabilities:Short-term debt
    
    $
    4.3Accounts payable and accrued expenses
    
    
    96.9Accrued income taxes
    
    
    12.7$
    113.9Deferred income taxes
    
    $
    35.4Other liabilities and deferred credits
    
    
    25.7$
    61.1




---



##### Table of Contents



118 Magnet Wire North America
    Current assets:Accounts receivable, net
    
    $
    57.1Inventories
    
    
    36.4Supplies
    
    
    4.2Prepaid expenses and other current assets
    
    
    2.5$
    100.2Property, plant and equipment, net
    
    $
    54.6Current liabilities:Accounts payable and accrued expenses
    
    $
    7.9Accrued income taxes
    
    
    1.4$
    9.3Other liabilities and deferred credits
    
    $
    0.2
  High Performance Conductors of SC & GA, Inc.
    3. Special Items and Provisions, Net
   2006
    
    
    2005
    
    
    2004PDMC Environmental provisions, net
    
    $
    (49.5
    )
    
    
    (35.7
    )
    
    
    (16.8
    )Environmental insurance recoveries, net
    
    
    (0.4
    )
    
    
    (1.5
    )
    
    
    9.1Asset impairment charges
    
    
    (2.5
    )
    
    
    (424.6
    )
    
    
    (1.1
    )Historical legal matters
    
    
    6.8
    
    
    
    14.5
    
    
    
    (2.5
    )(45.6
    )
    
    
    (447.3
    )
    
    
    (11.3
    )PDI Environmental provisions, net
    
    
    
    
    
    
    (2.2
    )
    
    
    (0.3
    )Asset impairment charges
    
    
    (5.6
    )
    
    
    (2.5
    )
    
    
    (0.6
    )Restructuring programs/closures
    
    
    
    
    
    
    (0.7
    )
    
    
    (10.5
    )Dissolution of international wire and cable entity
    
    
    (1.2
    )
    
    
    
    
    
    
    Sale of North American magnet wire assets:Loss on disposal
    
    
    (1.0
    )
    
    
    
    
    
    
    Asset impairment charges
    
    
    
    
    
    
    (5.4
    )
    
    
    Transaction and employee-related costs
    
    
    (4.1
    )
    
    
    (7.8
    )
    
    
    Sale of HPC:Loss on disposal
    
    
    (1.0
    )
    
    
    
    
    
    
    Transaction and employee-related costs
    
    
    (2.9
    )
    
    
    
    
    
    
    (15.8
    )
    
    
    (18.6
    )
    
    
    (11.4
    )Corporate and Other Environmental provisions, net
    
    
    (22.2
    )
    
    
    (75.4
    )
    
    
    (41.8
    )Environmental insurance recoveries, net
    
    
    0.4
    
    
    
    2.1
    
    
    
    0.2Asset impairment charges
    
    
    (2.8
    )
    
    
    
    
    
    
    Historical legal matters
    
    
    (4.2
    )
    
    
    4.9
    
    
    
    2.7Lease termination settlement
    
    
    (3.9
    )
    
    
    
    
    
    
    Sale of non-core real estate
    
    
    0.5
    
    
    
    11.2
    
    
    
    (32.2
    )
    
    
    (57.2
    )
    
    
    (38.9
    )$
    (93.6
    )
    
    
    (523.1
    )
    
    
    (61.6
    )




---



##### Table of Contents



119 2006
          2005




---



##### Table of Contents



120  June2004
    
    2005
    
    ReductionLeach ore (in million tons)
    
    
    275
    
    
    
    242
    
    
    
    33Grade
    
    
    0.31
    %
    
    
    0.31
    %
    
    
    Saleable copper (in million pounds)
    
    
    1,073
    
    
    
    918
    
    
    
    155
 2004
    
    2005
    
    IncreaseDelivered acid costs:Per ton*
    
    $
    31
    
    
    
    51
    
    
    
    20In millions
    
    $
    61
    
    
    
    90
    
    
    
    29
 
 *
    
    Represents the blended cost of internally sourced acid and acid obtained from third-party
sources.        2004




---



##### Table of Contents



121 4. Gain on Sale of Cost-Basis Investment
  5. Change in Interest Gains
    6. Investments and Long-Term Receivables
  2006
    
    
    2005Equity-basis investments:International wire and cable manufacturers
    
    $
    7.3
    
    
    
    6.3Port Carteret (50%)
    
    
    18.2
    
    
    
    19.0Other
    
    
    7.0
    
    
    
    6.6Available-for-sale securities:Dynatec Corporation
    
    
    29.0
    
    
    
    14.2First Quantum Minerals Ltd.
    
    
    75.7
    
    
    
    44.8Other available-for-sale securities
    
    
    3.9
    
    
    
    2.9Cost-basis investments
    
    
    7.8
    
    
    
    7.7Long-term bond investments*
    
    
    15.3
    
    
    
    17.9Notes and other receivables
    
    
    28.9
    
    
    
    23.2$
    193.1
    
    
    
    142.6
 
 *
    
    Long-term bond investments included $0.2 million and $0.8 million to secure a letter of
credit at December 31, 2006 and 2005, respectively. In addition,
$2.9 million and $8.0 million were
secured by a trust at December 31, 2006 and 2005, respectively.    2006
    
    
    2005
    
    
    2004Sales
    
    $
    262.2
    
    
    
    172.4
    
    
    
    155.0Net income
    
    $
    19.6
    
    
    
    10.0
    
    
    
    9.1Net current assets
    
    $
    36.8
    
    
    
    25.2
    
    
    
    19.4Property, plant and equipment, net
    
    
    84.2
    
    
    
    86.2
    
    
    
    127.6Long-term debt
    
    
    (29.1
    )
    
    
    (28.5
    )
    
    
    (28.4
    )Other assets and liabilities, net
    
    
    6.4
    
    
    
    3.5
    
    
    
    5.3Net assets
    
    $
    98.3
    
    
    
    86.4
    
    
    
    123.9
 7. Miscellaneous Income and Expense, Net
  2006
    
    
    2005
    
    
    2004Interest income
    
    $
    175.1
    
    
    
    59.2
    
    
    
    11.7Trust assets mark-to-market:Financial assurance assets
    
    
    3.8
    
    
    
    1.4
    
    
    
    3.2Non-qualified retirement benefit plan trust assets
    
    
    5.7
    
    
    
    2.2
    
    
    
    2.8Foreign currency exchange gain (loss)
    
    
    6.5
    
    
    
    (0.1
    )
    
    
    2.8Royalties and rental income
    
    
    1.2
    
    
    
    1.2
    
    
    
    1.7Miscellaneous non-operating expenses
    
    
    (8.7
    )
    
    
    (17.0
    )
    
    
    (13.5
    )Southern Peru Copper Corporation dividend*
    
    
    
    
    
    
    40.5
    
    
    
    26.7Gain on sale of uranium royalty rights
    
    
    
    
    
    
    
    
    
    
    10.1Equatorial lawsuit settlement
    
    
    
    
    
    
    
    
    
    
    9.5Cost-basis investment write-downs
    
    
    
    
    
    
    
    
    
    
    (11.1
    )Other
    
    
    7.3
    
    
    
    5.9
    
    
    
    1.4$
    190.9
    
    
    
    93.3
    
    
    
    45.3
 
 *
    
    On June 15, 2005, PD sold its 14.0 percent interest in Southern Peru Copper Corporation.




---



##### Table of Contents



122 8. Income Taxes
  2006
    
    
    2005
    
    
    2004United States
    
    $
    2,408.0
    
    
    
    1,322.3
    
    
    
    662.7Foreign
    
    
    2,425.9
    
    
    
    1,026.3
    
    
    
    691.4$
    4,833.9
    
    
    
    2,348.6
    
    
    
    1,354.1
  2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    (510.5
    )
    
    
    (288.2
    )
    
    
    (15.1
    )State
    
    
    (77.7
    )
    
    
    (7.8
    )
    
    
    (7.2
    )Foreign
    
    
    (571.0
    )
    
    
    (201.1
    )
    
    
    (124.2
    )(1,159.2
    )
    
    
    (497.1
    )
    
    
    (146.5
    )Deferred:Federal
    
    
    173.8
    
    
    
    55.1
    
    
    
    (43.5
    )State
    
    
    13.7
    
    
    
    (13.0
    )
    
    
    34.0Foreign
    
    
    (38.5
    )
    
    
    (122.0
    )
    
    
    24.7149.0
    
    
    
    (79.9
    )
    
    
    15.2$
    (1,010.2
    )
    
    
    (577.0
    )
    
    
    (131.3
    )
  Expense (benefit)2006
    
    
    2005
    
    
    2004U.S. federal statutory tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Foreign dividend income
    
    
    2.1
    
    
    
    5.2
    
    
    
    Percentage depletion
    
    
    (6.1
    )
    
    
    (9.5
    )
    
    
    (7.8
    )Peruvian reinvestment deductions
    
    
    (3.2
    )
    
    
    (3.7
    )
    
    
    Change in interest gains
    
    
    
    
    
    
    (3.1
    )
    
    
    International tax rate differential
    
    
    (2.6
    )
    
    
    (0.1
    )
    
    
    (1.7
    )State and local income taxes
    
    
    0.9
    
    
    
    0.6
    
    
    
    1.7Valuation allowance adjustments
    
    
    (5.8
    )
    
    
    0.3
    
    
    
    (19.3
    )Other items, net
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    1.820.9
    %
    
    
    24.6
    %
    
    
    9.7
    %
    2006
    
    
    2005Minimum tax credits
    
    $
    369.4
    
    
    
    566.1Peruvian reinvestment deductions
    
    
    99.0
    
    
    
    41.8Postretirement benefits
    
    
    24.5
    
    
    
    3.5Accrued expenses
    
    
    356.9
    
    
    
    321.8Mining costs
    
    
    34.4
    
    
    
    57.7Net operating loss carryforwards
    
    
    51.0
    
    
    
    68.7Stock basis differences
    
    
    
    
    
    
    52.5Capital loss carryforwards
    
    
    
    
    
    
    8.0Hedging losses
    
    
    151.2
    
    
    
    75.0Inventory
    
    
    47.3
    
    
    
    6.4Other
    
    
    28.1
    
    
    
    11.0Deferred tax assets
    
    
    1,161.8
    
    
    
    1,212.5Valuation allowances
    
    
    (46.1
    )
    
    
    (363.5
    )Net deferred tax assets
    
    
    1,115.7
    
    
    
    849.0Capitalized interest and financing costs
    
    
    (14.1
    )
    
    
    (36.0
    )Depreciation
    
    
    (568.6
    )
    
    
    (593.2
    )Mining properties
    
    
    (312.3
    )
    
    
    (243.7
    )Intangible mining assets
    
    
    (78.8
    )
    
    
    (79.1
    )Accrued withholding taxes
    
    
    (285.1
    )
    
    
    (162.7
    )Employee benefit plans
    
    
    (37.4
    )
    
    
    (77.9
    )Other
    
    
    (19.9
    )
    
    
    (32.8
    )Deferred tax liabilities
    
    
    (1,316.2
    )
    
    
    (1,225.4
    )$
    (200.5
    )
    
    
    (376.4
    )
   1-5
    
    
    6-10
    
    
    Over 10Years
    
    
    Years
    
    
    YearsNet operating loss carryforwards:U.S.  state
    
    $
    138
    
    
    
    21
    
    
    
    436




---



##### Table of Contents



123




---



##### Table of Contents



124   9. Mill and Leach Stockpiles, Inventories and
Supplies
  PDMC
    
    
    PDI
    
    
    TotalMill and Leach Stockpiles Current:Mill stockpiles
    
    $
    7.4
    
    
    
    
    
    
    
    7.4Leach stockpiles
    
    
    83.4
    
    
    
    
    
    
    
    83.4$
    90.8
    
    
    
    
    
    
    
    90.8Long-term:*Mill stockpiles
    
    $
    103.8
    
    
    
    
    
    
    
    103.8Leach stockpiles
    
    
    78.0
    
    
    
    
    
    
    
    78.0$
    181.8
    
    
    
    
    
    
    
    181.8Inventories Raw materials
    
    $
    2.3
    
    
    
    42.7
    
    
    
    45.0Work-in-process
    
    
    42.5
    
    
    
    7.4
    
    
    
    49.9Finished goods
    
    
    187.7
    
    
    
    73.4
    
    
    
    261.1$
    232.5
    
    
    
    123.5
    
    
    
    356.0Supplies
    
    $
    241.4
    
    
    
    6.5
    
    
    
    247.9
 
 *
    
    Stockpiles not expected to be processed within the next 12 months are classified as
long-term.  PDMC
    
    
    PDI
    
    
    TotalMill and Leach Stockpiles Current:Mill stockpiles
    
    $
    9.6
    
    
    
    
    
    
    
    9.6Leach stockpiles
    
    
    27.0
    
    
    
    
    
    
    
    27.0$
    36.6
    
    
    
    
    
    
    
    36.6Long-term:*Mill stockpiles
    
    $
    45.3
    
    
    
    
    
    
    
    45.3Leach stockpiles
    
    
    88.0
    
    
    
    
    
    
    
    88.0$
    133.3
    
    
    
    
    
    
    
    133.3Inventories Raw materials
    
    $
    1.4
    
    
    
    47.0
    
    
    
    48.4Work-in-process
    
    
    27.4
    
    
    
    11.7
    
    
    
    39.1Finished goods
    
    
    202.6
    
    
    
    39.4
    
    
    
    242.0$
    231.4
    
    
    
    98.1
    
    
    
    329.5Supplies
    
    $
    192.0
    
    
    
    7.7
    
    
    
    199.7
 
 *
    
    Stockpiles not expected to be processed within the next 12 months are classified as
long-term.    10. Property, Plant and Equipment
  2006
    
    
    2005Buildings, machinery and equipment
    
    $
    8,162.2
    
    
    
    7,028.8Mining properties
    
    
    1,734.7
    
    
    
    1,604.5Capitalized mine development
    
    
    202.6
    
    
    
    221.2Land and water rights
    
    
    128.3
    
    
    
    126.010,227.8
    
    
    
    8,980.5Less accumulated depreciation, depletion and amortization
    
    
    4,354.3
    
    
    
    4,149.6$
    5,873.5
    
    
    
    4,830.9




---



##### Table of Contents



11. Goodwill
  Wire
    
    
    Disc-Primary
    
    
    and
    
    
    continuedMolybdenum
    
    
    Cable
    
    
    Operations
    
    
    TotalBalance as of December 31, 2004
    
    $
    
    
    
    
    20.7
    
    
    
    82.8
    
    
    
    103.5Foreign currency translation adjustments
    
    
    
    
    
    
    0.1
    
    
    
    8.2
    
    
    
    8.3Additions
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Impairment losses
    
    
    
    
    
    
    
    
    
    
    (89.0
    )
    
    
    (89.0
    )Disposition of Columbian Chemicals*
    
    
    
    
    
    
    
    
    
    
    (2.0
    )
    
    
    (2.0
    )Balance as of December 31, 2005
    
    $
    1.5
    
    
    
    20.8
    
    
    
    
    
    
    
    22.3Disposition of HPC
    
    
    
    
    
    
    (9.8
    )
    
    
    
    
    
    
    (9.8
    )Balance as of December 31, 2006
    
    $
    1.5
    
    
    
    11.0
    
    
    
    
    
    
    
    12.5
 
 *
    
    Included in long-term assets held for sale in our Consolidated Balance Sheet.  12. Trust Assets, and Other Assets and Deferred Charges
  2006
    
    
    2005Trust assets:Financial assurance trust assets*
    
    $
    97.2
    
    
    
    90.9Global reclamation and remediation trust assets**
    
    
    417.0
    
    
    
    100.0Non-qualified retirement benefit trust assets
    
    
    73.9
    
    
    
    67.3Other
    
    
    0.2
    
    
    
    0.2$
    588.3
    
    
    
    258.4Other assets and deferred charges:Employee benefit plans***
    
    $
    112.2
    
    
    
    316.9Debt issue costs
    
    
    27.0
    
    
    
    28.1Other
    
    
    20.2
    
    
    
    16.3$
    159.4
    
    
    
    361.3
 
 *
    
    Legally restricted funds for the use of asset retirement obligation activities at Chino,
Tyrone and Cobre. Refer to Note 22, Contingencies, for further
discussion.**
    
    Trust assets designated for global reclamation and remediation activities. Refer to Note 22,
Contingencies, for further discussion.***
    
    Refer to Note 13, Accounts Payable and Accrued Expenses, for short-term liability; Note 14,
Other Liabilities and Deferred Credits, for long-term liability; Note 18, Pension Plans; and
Note 19, Postretirement and Other Employee Benefits Other Than Pensions, for further
discussion. 13. Accounts Payable and Accrued Expenses
  2006
    
    
    2005Accounts payable
    
    $
    824.1
    
    
    
    602.5Accrued copper hedges*
    
    
    1,238.4
    
    
    
    382.7Salaries, wages and other compensation
    
    
    78.1
    
    
    
    63.2Pension, postretirement, postemployment
and other employee benefit plans**
    
    
    84.9
    
    
    
    66.5Insurance claim reserves***
    
    
    12.4
    
    
    
    11.9Environmental reserves***
    
    
    116.9
    
    
    
    82.3Asset retirement obligations***
    
    
    124.8
    
    
    
    81.4Smelting, refining and freight
    
    
    14.6
    
    
    
    8.7Other accrued taxes
    
    
    37.4
    
    
    
    40.0Accrued utilities
    
    
    21.1
    
    
    
    15.7Interest****
    
    
    12.4
    
    
    
    11.3Professional fees
    
    
    12.1
    
    
    
    13.9Legal matters
    
    
    7.3
    
    
    
    1.5Charitable obligation at Cerro Verde
    
    
    40.0
    
    
    
    Maintenance contracts/contractor accruals
    
    
    31.2
    
    
    
    31.7Other
    
    
    50.1
    
    
    
    32.4$
    2,705.8
    
    
    
    1,445.7
 
 *
    
    Accrued copper hedges included realized pre-tax charges of $801.4 million associated with the
2006 copper price protection programs and unrealized pre-tax charges of $403.2 million
associated with the 2007 copper price protection programs at December 31, 2006. Accrued copper
hedges included realized pre-tax charges of $187.2 million associated with the 2005 copper
price protection programs and unrealized pre-tax charges of $164.0 million associated with the
2006 copper price protection programs at December 31, 2005.**
    
    Refer to Note 14, Other Liabilities and Deferred Credits, for long-term portion; Note 18,
Pension Plans; and Note 19, Postretirement and Other Employee Benefits Other Than Pensions,
for further discussion.***
    
    Short-term portion of these reserves. Refer to Note 14, Other Liabilities and Deferred
Credits, for long-term portion of reserves and Note 22, Contingencies, for further discussion.****
    
    Third-party interest paid by the Company in 2006 was $68.6 million, compared with $88.0
million in 2005 and $134.6 million in 2004. 14. Other Liabilities and Deferred Credits
  2006
    
    
    2005Pension, postretirement, postemployment
and other employee benefit plans*
    
    $
    218.9
    
    
    
    245.0Environmental reserves**
    
    
    261.0
    
    
    
    285.6Asset retirement obligations**
    
    
    320.7
    
    
    
    317.0Insurance claim reserves**
    
    
    47.3
    
    
    
    47.1Other
    
    
    42.8
    
    
    
    39.5$
    890.7
    
    
    
    934.2
 
 *
    
    Refer to Note 13, Accounts Payable and Accrued Expenses, for short-term portion; Note 18,
Pension Plans; and Note 19, Postretirement and Other Employee Benefits Other Than Pensions,
for further discussion.**
    
    Refer to Note 13, Accounts Payable and Accrued Expenses, for short-term portion of reserves
and Note 22, Contingencies, for further discussion.




---



##### Table of Contents



15. Debt and Other Financing
  2006
    
    
    20057.375% Notes due 2007
    
    $
    60.6
    
    
    
    61.88.75% Notes due 2011
    
    
    108.8
    
    
    
    109.09.50% Notes due 2031
    
    
    196.8
    
    
    
    196.96.125% Notes due 2034
    
    
    149.8
    
    
    
    149.87.125% Debentures due 2027
    
    
    115.0
    
    
    
    115.0Cerro Verde Project Financing
    
    
    202.0
    
    
    
    20.0Subsidiary Debt Financing
    
    
    0.2
    
    
    
    1.7Various Pollution Control and Industrial
Development Revenue Bonds due through 2009
    
    
    25.0
    
    
    
    26.0Long-term debt, including current portion
    
    
    858.2
    
    
    
    680.2Less current portion
    
    
    88.1
    
    
    
    2.5Long-term, excluding current portion
    
    $
    770.1
    
    
    
    677.7
 
   Project andSubsidiaryCorporate
    
    
    Debt Financing
    
    
    Total2007
    
    $
    62.7
    
    
    
    25.4
    
    
    
    88.12008
    
    
    0.4
    
    
    
    25.3
    
    
    
    25.72009
    
    
    23.3
    
    
    
    25.2
    
    
    
    48.52010
    
    
    0.3
    
    
    
    25.2
    
    
    
    25.52011
    
    
    108.0
    
    
    
    25.2
    
    
    
    133.2Thereafter
    
    
    461.3
    
    
    
    75.9
    
    
    
    537.2$
    656.0
    
    
    
    202.2
    
    
    
    858.2




---



##### Table of Contents



16. Shareholders Equity
     17. Share-Based Compensation




---



##### Table of Contents



2005
    
    
    2004Net income as reported
    
    $
    1,556.4
    
    
    
    1,046.3Deduct:Total compensation cost assuming fair value
method for stock options, net of tax
    
    
    (2.9
    )
    
    
    (5.2
    )Pro forma net income
    
    $
    1,553.5
    
    
    
    1,041.1Basic earnings per common share:*As reported
    
    $
    7.92
    
    
    
    5.53Pro forma
    
    $
    7.90
    
    
    
    5.50Diluted earnings per common share:*As reported
    
    $
    7.69
    
    
    
    5.29Pro forma
    
    $
    7.67
    
    
    
    5.27
 
 *
    
    Earnings per common share have been adjusted to reflect the March 10, 2006, two-for-one stock
split. (Refer to Note 16, Shareholders Equity, for further discussion.)  2006
    
    
    2005
    
    
    2004Expected dividend yield
    
    
    0.95
    %
    
    
    1.04
    %
    
    
    0.00
    %Expected stock price volatility
    
    
    37.3
    %
    
    
    39.8
    %
    
    
    41.3
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    3.8
    %
    
    
    3.3
    %Expected life of options
    
    5 years
    
    5 years
    
    5 years
       Average OptionShares*
    
    

Price Per Share*Outstanding at December 31, 2003
    
    
    12,980,088
    
    
    $
    27.62Granted
    
    
    202,600
    
    
    
    37.31Exercised
    
    
    (9,459,732
    )
    
    
    29.15Forfeited or expired
    
    
    (266,304
    )
    
    
    36.86Outstanding at December 31, 2004
    
    
    3,456,652
    
    
    
    23.26Granted
    
    
    267,800
    
    
    
    48.10Exercised
    
    
    (2,586,640
    )
    
    
    22.86Forfeited or expired
    
    
    (26,638
    )
    
    
    38.04Outstanding at December 31, 2005
    
    
    1,111,174
    
    
    
    29.82Granted
    
    
    143,000
    
    
    
    79.00Exercised
    
    
    (695,144
    )
    
    
    26.60Forfeited or expired
    
    
    (38,476
    )
    
    
    45.79Outstanding at December 31, 2006
    
    
    520,554
    
    
    
    46.45Exercisable at December 31, 2004
    
    
    2,744,406
    
    
    
    22.81Exercisable at December 31, 2005
    
    
    702,284
    
    
    
    21.60Exercisable at December 31, 2006
    
    
    187,125
    
    
    
    23.99
 
 *
    
    Prior to 2006, shares and average option price per share have
been adjusted to reflect the March 10, 2006, two-for-one stock
split. (Refer to Note 16, Shareholders Equity, for further discussion.)




---



##### Table of Contents



WeightedAverage OptionPriceShares
    
    
    Per SharePD Plans2003 Plan
    
    
    24,655
    
    
    $
    44.071998 Plan
    
    
    156,980
    
    
    
    20.571993 Plan
    
    
    5,000
    
    
    
    32.69Cyprus Amax Plans
    
    
    490
    
    
    
    22.23187,125
    
    
    
    23.99
    Shares*Outstanding at December 31, 2003
    
    
    903,812Granted
    
    
    512,270Forfeited
    
    
    (24,300
    )Released
    
    
    (170,592
    )Outstanding at December 31, 2004
    
    
    1,221,190Granted
    
    
    581,400Forfeited
    
    
    (37,700
    )Released
    
    
    (216,156
    )Outstanding at December 31, 2005
    
    
    1,548,734Granted
    
    
    299,190Forfeited
    
    
    (179,746
    )Released
    
    
    (129,657
    )Outstanding at December 31, 2006
    
    
    1,538,521
 
 *
    
    Prior to 2006, shares have been adjusted to reflect the March 10, 2006, two-for-one stock
split. (Refer to Note 16, Shareholders Equity, for further discussion.)




---



##### Table of Contents



(a)
    
    (b)
    
    (c)Plan Category
    
    Number of
    
    Weighted-
    
    Number of securitiessecurities to
    
    average
    
    remaining for futurebe issued upon
    
    exercise price
    
    issuance underexercise of
    
    of outstanding
    
    equity compensationoutstanding
    
    options,
    
    plans (excludingoptions, warrants
    
    warrants
    
    securities reflectedand rights
    
    and rights
    
    in column (a))Equity
compensation plans approved by
security holders
    
    
    520,554
    
    
    $
    46.45
    
    
    
    7,423,236Equity
compensation plans not approved
by security holders*
    
    
    *
    
    
    
    *
    
    
    
    *Total
    
    
    
    
    
    
    
    
    
    
    7,423,236
 
 *
    
    Two plans in which members of the board of directors may participate and that have not been
approved by security holders include provisions that authorize, under certain circumstances,
the issuance of equity shares. The Phelps Dodge Corporation Directors Stock Unit Plan,
effective as of January 1, 1997, provided for an annual grant of 450 units in each of 1998,
1999, and 2000. Commencing in 2001 and continuing through 2004, the grants were equal in value
to $50,000, increasing to $75,000 for awards on and after January 1, 2005, with prorated
awards permitted with respect to services to be performed in 2006. Commencing in 2001, these
grants were based upon the fair market value of a share of PD stock on the day preceding the
date of grant. Participants in this plan may elect to receive distributions from this plan in
a lump sum or installments, in the form of PD common shares or cash following termination from
service as a director. This plan terminated in accordance with its terms on December 31, 2006.
On May 26, 2006, the Phelps Dodge Corporation 2007 Directors Stock Unit Plan was approved by
the Companys shareholders. The 2007 Plan, effective as of January 1, 2007, provides for
grants equal in value to $75,000 on the date of the annual shareholders meeting for
continuing directors and prorated awards for departing or newly appointed or elected
directors. Directors may elect, in accordance with the provisions of the Deferred Compensation
Plan for the Directors of Phelps Dodge Corporation, effective as of January 1, 1999, to defer
the payment of their directors fees, and if they so elected, to receive in the future the
payment of those fees in PD common shares or cash. Participating directors may elect to
receive a distribution from this plan, no later than the plan year in which the director
reaches age 75, either in cash or in shares of PD common stock or in a specified combination
thereof. Based on the nature of these plans, (1) column (b) is not applicable, as there is no
exercise price related to the units, and (2) it is not possible to determine the exact number
of equity securities that remain for future issuance under these plans, although the number of
shares already issued under these plans since their inception is not material. 18. Pension Plans
      2006
    
    2005Asset category:Equity securities
    
    
    57
    %
    
    
    58
    %Fixed income
    
    
    33
    %
    
    
    34
    %Real estate
    
    
    7
    %
    
    
    5
    %Other
    
    
    3
    %
    
    
    3
    %100
    %
    
    
    100
    %




---



##### Table of Contents



131           2006
    
    2005Projected benefit obligation
    
    $
    71
    
    
    
    133Accumulated benefit obligation
    
    $
    63
    
    
    
    123Fair value of plan assets
    
    $
    11
    
    
    
    51
  2006
    
    2005Weighted-average assumptions:Discount rate
    
    
    5.59
    %
    
    
    5.63
    %Rate of increase in salary levels
    
    
    4.25
    %
    
    
    4.00
    %Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    1,351
    
    
    
    1,351Service cost  benefits earned during the period
    
    
    23
    
    
    
    28Interest cost on benefit obligation
    
    
    71
    
    
    
    74Plan amendments
    
    
    
    
    
    
    2Actuarial (gain) loss
    
    
    37
    
    
    
    (15
    )Benefits paid
    
    
    (78
    )
    
    
    (84
    )Divestitures
    
    
    (77
    )
    
    
    Special retirement benefits
    
    
    1
    
    
    
    4Currency translation adjustments
    
    
    3
    
    
    
    (9
    )Benefit obligation at end of year
    
    $
    1,331
    
    
    
    1,351




---



##### Table of Contents



132 2006
    
    2005Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    1,316
    
    
    
    1,019Actual return on plan assets
    
    
    191
    
    
    
    129Employer contributions
    
    
    18
    
    
    
    257Currency translation adjustments
    
    
    2
    
    
    
    (5
    )Benefits paid
    
    
    (78
    )
    
    
    (84
    )Divestitures
    
    
    (71
    )
    
    
    Fair value of plan assets at end of year
    
    $
    1,378
    
    
    
    1,316Funded status
    
    $
    47
    
    
    
    (35
    )
  Other assets and deferred charges (noncurrent assets)
    
    $
    108Accounts payable and accrued expenses (current liabilities)
    
    
    (4
    )Other liabilities and deferred credits (noncurrent liabilities)
    
    
    (57
    )$
    47
  Net actuarial loss (net of tax of $85 million)
    
    $
    134Net prior service cost (net of tax of $3 million)
    
    
    5Net transition obligation (before and after taxes)
    
    
    1$
    140
   Prepaid benefit cost
    
    $
    314Accrued benefit liability
    
    
    (72
    )Intangible asset
    
    
    1Deferred tax benefit
    
    
    10Accumulated other comprehensive loss
    
    
    26Net amount recognized
    
    $
    279
   Before
    
    
    
    
    
    AfterAdoption
    
    
    
    
    
    Adoptionof SFAS
    
    
    
    
    
    of SFASNo. 158
    
    Adjustments
    
    No. 158Other assets and deferred charges
    
    $
    311
    
    
    
    (203
    )
    
    
    108Total assets
    
    $
    311
    
    
    
    (203
    )
    
    
    108Accounts payable and accrued expenses
    
    $
    5
    
    
    
    (1
    )
    
    
    4Deferred income taxes
    
    $
    (6
    )
    
    
    (82
    )
    
    
    (88
    )Other liabilities and deferred credits
    
    $
    48
    
    
    
    9
    
    
    
    57Total liabilities
    
    $
    47
    
    
    
    (74
    )
    
    
    (27
    )Accumulated other comprehensive loss
    
    $
    (11
    )
    
    
    (129
    )
    
    
    (140
    )Total shareholders equity
    
    $
    (11
    )
    
    
    (129
    )
    
    
    (140
    )
  2006
    
    2005
    
    2004Weighted-average assumptions:Discount rate
    
    
    5.63
    %
    
    
    5.75
    %
    
    
    6.25
    %Expected long-term rate of return
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %Rate of increase in salary levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Net periodic benefit cost:Service cost  benefits earned during the period
    
    $
    22.6
    
    
    
    28.1
    
    
    
    23.6Interest cost on benefit obligation
    
    
    70.8
    
    
    
    74.3
    
    
    
    72.0Expected return on plan assets
    
    
    (104.4
    )
    
    
    (86.1
    )
    
    
    (84.1
    )Amortization of transition obligation
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Amortization of prior service cost
    
    
    2.6
    
    
    
    3.6
    
    
    
    3.4Amortization of actuarial loss
    
    
    18.1
    
    
    
    14.0
    
    
    
    3.2Curtailments and special retirement benefits
    
    
    0.8
    
    
    
    5.3
    
    
    
    0.8Net periodic benefit cost
    
    $
    10.6
    
    
    
    39.3
    
    
    
    19.0
  19. Postretirement and Other Employee Benefits Other Than Pensions




---



##### Table of Contents



133          2006
    
    2005Weighted-average assumptions:Discount rate  medical retiree
    
    
    5.67
    %
    
    
    5.37
    %Discount rate  life retiree
    
    
    5.71
    %
    
    
    5.41
    %Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    281
    
    
    
    363Service cost  benefits earned during the year
    
    
    1
    
    
    
    4Interest cost on benefit obligation
    
    
    14
    
    
    
    20Plan amendments
    
    
    
    
    
    
    (30
    )Actuarial gain
    
    
    (12
    )
    
    
    (41
    )Benefits paid, net of employee contributions
    
    
    (30
    )
    
    
    (30
    )Curtailments
    
    
    
    
    
    
    (6
    )Special retirement benefits
    
    
    
    
    
    
    1Benefit obligation at end of year
    
    $
    254
    
    
    
    281Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    201
    
    
    
    3Return on assets
    
    $
    6
    
    
    
    Employer contributions
    
    
    1
    
    
    
    228Benefits paid, net of employee contributions
    
    
    (30
    )
    
    
    (30
    )Fair value of plan assets at end of year
    
    $
    178
    
    
    
    201Funded status
    
    $
    (76
    )
    
    
    (80
    )
   Net actuarial gain (net of tax of $14 million)
    
    $
    (23
    )Net prior service benefit (net of tax of $8 million)
    
    
    (12
    )$
    (35
    )




---



##### Table of Contents



134   Before
    
    
    
    
    
    AfterAdoption
    
    
    
    
    
    Adoptionof SFAS
    
    
    
    
    
    of SFASNo. 158
    
    Adjustments
    
    No. 158Deferred income taxes
    
    $
    
    
    
    
    22
    
    
    
    22Other liabilities and deferred credits
    
    $
    133
    
    
    
    (57
    )
    
    
    76Total liabilities
    
    $
    133
    
    
    
    (35
    )
    
    
    98Accumulated other comprehensive income
    
    $
    
    
    
    
    35
    
    
    
    35Total shareholders equity
    
    $
    
    
    
    
    35
    
    
    
    35
  2006
    
    2005
    
    2004Weighted-average assumptions:Discount rate  medical retiree
    
    
    5.37
    %
    
    
    5.75
    %
    
    
    6.25
    %Discount rate  life retiree
    
    
    5.41
    %
    
    
    6.00
    %
    
    
    6.25
    %Expected long-term rate of return on plan assets:Medical retiree*
    
    
    3.50
    %Life retiree
    
    
    5.00
    %
    
    
    6.50
    %
    
    
    6.50
    %Components of net periodic benefit cost:Service cost  benefits earned during the year
    
    $
    1.2
    
    
    
    4.3
    
    
    
    5.4Interest cost on benefit obligation
    
    
    14.4
    
    
    
    19.6
    
    
    
    23.3Expected return on plan assets
    
    
    (7.0
    )
    
    
    (0.1
    )
    
    
    (0.3
    )Amortization of prior service cost (benefit)
    
    
    (2.5
    )
    
    
    0.3
    
    
    
    1.3Recognized net actuarial loss (gain)
    
    
    (0.7
    )
    
    
    0.5
    
    
    
    0.4Curtailments and special retirement benefits
    
    
    (0.3
    )
    
    
    0.8
    
    
    
    Net periodic benefit cost
    
    $
    5.1
    
    
    
    25.4
    
    
    
    30.1
 
 *
    
    Prior to the 2006 plan year, there was no expected return on plan assets for the
postretirement medical obligations.   2006
    
    2005Medical-care cost trend rate assumed for major medical
plan for the next year
    
    
    10
    %
    
    
    10
    %Medical-care cost trend rate assumed for basic only
plan for the next year
    
    
    8
    %
    
    
    8
    %Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
    
    
    5
    %
    
    
    5
    %Year that the rate reaches the ultimate trend rate
    
    
    2013
    
    
    
    2012
  1 Percentage PointIncrease
    
    DecreaseEffect on total of service and interest cost components
    
    $
    0.6
    
    
    
    (0.5
    )Effect on postretirement benefit obligation
    
    $
    9.8
    
    
    
    (8.5
    )




---



##### Table of Contents



135  20. Commitments
   Operating
    
    MineralLeases
    
    Royalties2007
    
    $
    16.6
    
    
    
    1.92008
    
    
    14.9
    
    
    
    1.92009
    
    
    13.9
    
    
    
    1.92010
    
    
    12.2
    
    
    
    1.72011
    
    
    9.2
    
    
    
    1.3After 2011
    
    
    6.8
    
    
    
    9.4Total payments
    
    $
    73.6
    
    
    
    18.1
  Sub-leaseIncome2007
    
    $
    0.32008
    
    
    0.32009
    
    
    0.42010
    
    
    0.32011
    
    
    After 2011
    
    
    $
    1.3
  2006
    
    2005
    
    2004Rental expense
    
    $
    38.5
    
    
    
    32.7
    
    
    
    33.8Mineral royalty expense
    
    
    1.3
    
    
    
    1.3
    
    
    
    1.3$
    39.8
    
    
    
    34.0
    
    
    
    35.1
   21. Guarantees




---



##### Table of Contents



136  22. Contingencies
 Letters of Credit and Surety Bonds
  Insurance
   Environmental




---



##### Table of Contents



137  Pinal Creek Site
     Chino AOC
  Tohono Tailing and Evaporation Pond Remediation
   Anniston Lead and PCB Sites




---



##### Table of Contents



138 de minimis
 Laurel Hill Site
    Other
      2006
    
    2005
    
    2004Balance, beginning of year
    
    $
    367.9
    
    
    
    303.6
    
    
    
    317.2Additions to reserves*
    
    
    84.0
    
    
    
    116.0
    
    
    
    63.6Reductions in reserve estimates
    
    
    (1.6
    )
    
    
    (2.6
    )
    
    
    (4.7
    )Spending against reserves
    
    
    (72.4
    )
    
    
    (49.1
    )
    
    
    (72.5
    )Balance, end of year
    
    $
    377.9
    
    
    
    367.9
    
    
    
    303.6
 
 *
    
    2006 included $10.6 million not charged to expense that was associated with cash settlements
to Phelps Dodge from PRPs. Asset Retirement Obligations




---



##### Table of Contents



139   Asset Retirement Obligations2006
    
    2005
    
    2004Balance, beginning of year
    
    $
    398.4
    
    
    
    275.2
    
    
    
    225.3Liability recorded upon adoption of FIN 47*
    
    
    
    
    
    
    17.9
    
    
    
    Additional liabilities from fully consolidating
El Abra and Candelaria*
    
    
    
    
    
    
    
    
    
    
    5.6New liabilities during the period
    
    
    5.3
    
    
    
    1.5
    
    
    
    1.8Accretion expense
    
    
    25.8
    
    
    
    22.8
    
    
    
    19.6Payments
    
    
    (64.3
    )
    
    
    (39.2
    )
    
    
    (28.9
    )Revisions in estimated cash flows
    
    
    78.9
    
    
    
    127.0
    
    
    
    51.6Foreign currency translation adjustments
    
    
    
    
    
    
    (0.6
    )
    
    
    0.2Transfer to long-term liabilities related
to assets held for sale
    
    
    
    
    
    
    (6.2
    )
    
    
    Other
    
    
    1.4
    
    
    
    
    
    
    
    Balance, end of year
    
    $
    445.5
    
    
    
    398.4
    
    
    
    275.2
 
 *
    
    Refer to Note 1, Summary of Significant Accounting Policies, for further discussion. Asset Retirement Costs2006
    
    2005
    
    2004Gross balance, beginning of year
    
    $
    199.2
    
    
    
    196.3
    
    
    
    138.9Asset recorded upon adoption of FIN 47*
    
    
    
    
    
    
    8.4
    
    
    
    Additional assets from fully consolidating
El Abra and Candelaria*
    
    
    
    
    
    
    
    
    
    
    3.8New assets during the period
    
    
    5.3
    
    
    
    1.5
    
    
    
    1.8Revisions in estimated cash flows
    
    
    78.9
    
    
    
    127.0
    
    
    
    51.6Impairment of assets
    
    
    
    
    
    
    (129.7
    )
    
    
    Foreign currency translation adjustments
    
    
    
    
    
    
    (0.4
    )
    
    
    0.2Transfer to long-term assets held for sale
    
    
    
    
    
    
    (3.9
    )
    
    
    Gross balance, end of year
    
    
    283.4
    
    
    
    199.2
    
    
    
    196.3Less accumulated depreciation, depletion
and amortization**
    
    
    101.5
    
    
    
    86.4
    
    
    
    71.2Net balance, end of year
    
    $
    181.9
    
    
    
    112.8
    
    
    
    125.1
 
 *
    
    Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.**
    
    In 2005, accumulated depreciation, depletion and amortization included adjustments for the
adoption of FIN 47 ($4.0 million) and the transfer to long-term assets held for sale ($2.0
million); 2004 included adjustments of $1.4 million from fully consolidating El Abra and
Candelaria.




---



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140  Significant Arizona Environmental and Reclamation Programs




---



##### Table of Contents



141      Significant New Mexico Environmental and Reclamation Programs




---



##### Table of Contents



142




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##### Table of Contents



143  Significant Colorado Reclamation Programs
  Avian Mortalities and Natural Resources Damage Claims
        Significant International Closure and Reclamation Programs
 Sociedad Minera Cerro Verde S.A.A.




---



##### Table of Contents



144   Other
  Other
     Legal
 Technical Industries, Inc. v. Cabot
Corporation, et al. In
Re Carbon Black Antitrust Litigation
 Carlisle Companies Incorporated, et al. v. Cabot Corporation,
et al.




---



##### Table of Contents



145    Phillips v. Phelps Dodge Corporation, et al. Nathanson
v. Phelps Dodge Corporation, et al. Knisley v. Phelps Dodge Corp.
et al.
  23. Derivative Financial Instruments and Fair Value of Financial Instruments
   (Units in millions)
    
    Open Derivative Positions
    
    Expired Derivative PositionsOpen
    
    Gain/
    
    
    
    Hedged Sales
    
    Gain/Year
    
    Position
    
    (Loss) (1)
    
    Maturity
    
    Price Per Unit
    
    (Loss) (1)Fair Value HedgesCopper fixed-price rod sales (lbs.) (2) & (3)
    
    
    2005
    
    
    
    13
    
    
    
    
    
    
    December 2006
    
    1.71/lb.
    
    
    2004
    
    
    
    11
    
    
    
    
    
    
    December 2005
    
    1.29/lb.
    
    
    Foreign currency (USD) (3)
    
    
    2006
    
    
    
    13
    
    
    
    
    
    
    May 2007
    
    
    
    
    0.52005
    
    
    
    6
    
    
    
    
    
    
    April 2006
    
    
    
    
    (0.7
    )2004
    
    
    
    37
    
    
    
    
    
    
    April 2005
    
    
    
    
    0.6Cash Flow HedgesMetal purchase (lbs.) (4) & (5)
    
    
    2006
    
    
    
    33
    
    
    
    3.3
    
    
    February 2008
    
    
    
    
    14.52005
    
    
    
    38
    
    
    
    8.3
    
    
    August 2006
    
    
    
    
    3.32004
    
    
    
    30
    
    
    
    1.9
    
    
    August 2006
    
    
    
    
    1.6Diesel fuel price protection (gallons) (4)
    
    
    2006
    
    
    
    9
    
    
    
    0.1
    
    
    March 2007
    
    
    
    
    0.42005
    
    
    
    9
    
    
    
    0.5
    
    
    March 2006
    
    
    
    
    2.12004
    
    
    
    11
    
    
    
    
    
    
    March 2005
    
    
    
    
    9.6Natural gas price protection (decatherms) (4)
    
    
    2006
    
    
    
    0.3
    
    
    
    0.1
    
    
    March 2007
    
    
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.32004
    
    
    
    1.9
    
    
    
    
    
    
    March 2005
    
    
    
    
    2.4Other Economic Price Protection Programs Not Qualifying for Hedge AccountingCopper fixed-price rod sales (lbs.) (2)
    
    
    2006
    
    
    
    103
    
    
    
    (29.4
    )
    
    November 2008
    
    3.14/lb.
    
    
    138.42005
    
    
    
    72
    
    
    
    14.6
    
    
    December 2006
    
    1.71/lb.
    
    
    69.32004
    
    
    
    51
    
    
    
    6.8
    
    
    October 2006
    
    1.29/lb.
    
    
    22.3Copper price protection (lbs.) (6), (7) & (8)
    
    
    2006
    
    
    
    1,216
    
    
    
    (371.3
    )
    
    December 2007
    
    1.63/lb.
    
    
    (637.6
    )2005
    
    
    
    2,344
    
    
    
    (223.9
    )
    
    December 2006/2007
    
    1.38/lb.
    
    
    (186.6
    )2004
    
    
    
    650
    
    
    
    (0.6
    )
    
    December 2005
    
    
    
    
    




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##### Table of Contents



146 Continued(Units in millions)
    
    Open Derivative Positions
    
    Expired Derivative PositionsOpen
    
    Gain/
    
    
    
    Hedged Sales
    
    Gain/Year
    
    Position
    
    (Loss) (1)
    
    Maturity
    
    Price Per Unit
    
    (Loss) (1)Copper COMEX-LME arbitrage (lbs.)
    
    
    2006
    
    
    
    25
    
    
    
    0.4
    
    
    March 2007
    
    
    
    
    (4.3
    )2005
    
    
    
    36
    
    
    
    (1.7
    )
    
    March 2006
    
    
    
    
    (1.8
    )2004
    
    
    
    76
    
    
    
    0.3
    
    
    December 2005
    
    
    
    
    Gold price protection (ounces)
    
    
    2006
    
    
    
    0.1
    
    
    
    0.2
    
    
    December 2007
    
    491/oz.
    
    
    (7.0
    )2005
    
    
    
    0.1
    
    
    
    (3.4
    )
    
    December 2006
    
    448/oz.
    
    
    (0.3
    )2004
    
    
    
    0.1
    
    
    
    
    
    
    December 2005
    
    395/oz.
    
    
    0.7Silver price protection (ounces)
    
    
    2006
    
    
    
    0.9
    
    
    
    0.2
    
    
    December 2007
    
    9.95/oz.
    
    
    (1.5
    )2005
    
    
    
    1.2
    
    
    
    (0.3
    )
    
    December 2006
    
    7.32/oz.
    
    
    2004
    
    
    
    0.7
    
    
    
    
    
    
    December 2005
    
    
    
    
    Copper quotational period swaps (lbs.)
    
    
    2006
    
    
    
    3
    
    
    
    1.7
    
    
    January 2007
    
    3.13/lb.
    
    
    (113.7
    )2005
    
    
    
    92
    
    
    
    (14.0
    )
    
    March 2006
    
    1.68/lb.
    
    
    (71.9
    )2004
    
    
    
    130
    
    
    
    (10.9
    )
    
    April 2005
    
    1.33/lb.
    
    
    (12.0
    )Other diesel fuel price protection (gallons)
    
    
    2006
    
    
    
    6
    
    
    
    0.1
    
    
    March 2007
    
    
    
    
    2005
    
    
    
    5
    
    
    
    0.3
    
    
    March 2006
    
    
    
    
    1.22004
    
    
    
    6
    
    
    
    
    
    
    March 2005
    
    
    
    
    3.8Other natural gas price protection (decatherms) (9)
    
    
    2006
    
    
    
    1.2
    
    
    
    0.3
    
    
    March 2007
    
    
    
    
    Foreign currency swaps (USD) (9)
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.9
    )2005
    
    
    
    75
    
    
    
    (0.5
    )
    
    October 2006
    
    
    
    
    (1.3
    )Foreign currency forward contracts (USD) (9)
    
    
    2006
    
    
    
    7
    
    
    
    (0.1
    )
    
    January 2007
    
    
    
    
    0.1
 
 (1)
    
    Gains/losses are recognized in the Consolidated Statement of Income for the periods
presented, except for cash flow hedges, which are recorded in other comprehensive income
(loss)  refer to (4) below.(2)
    
    Expired positions for hedge gains/losses for both the qualifying copper fixed-price program
and the non-qualifying copper fixed-price rod sales are combined in the copper fixed-price rod
sales realized gain/loss column. As a result of the 2006 first quarter sale of the Magnet Wire
North American assets, we discontinued the qualifying copper fixed-price program.(3)
    
    The hedge gain or loss from changes in fair value is recognized in earnings. Changes in fair
value of the hedged item (or hedged exposure) attributable to hedged risk are also recognized
in earnings.(4)
    
    Open positions for the effective portions of hedge gains or losses from cash flow hedges are
recorded in other comprehensive income (loss). At settlement of the hedged item, an equal and
offsetting amount is recognized in cost of products sold.(5)
    
    At December 31, 2006, approximately $2.7 million of gains recorded in other comprehensive
income (loss), primarily associated with our metal purchase program, was expected to be
settled and recognized as a reduction to cost of products sold during the next 12 months. At
December 31, 2005 and 2004, we had $8.5 million and $1.5 million of gains, respectively, in
other comprehensive income (loss) that were reclassified as a reduction to cost of products
sold during 2006 and 2005, respectively.(6)
    
    Losses from the copper price protection programs include premium expense.(7)
    
    The Company has recognized the following pre-tax charges associated with its 2005, 2006 and
2007 copper collar price protection programs: (i) a $0.6 million loss in 2004 and a $186.6
million loss in 2005 for a cumulative loss of $187.2 on 2005 El Abra and PDMC zero-premium
copper collar price protection programs; (ii) a $175.0 million loss in 2005 and a $637.6
million loss in 2006 for a cumulative loss of $812.6 million on 2006 zero-premium copper
collar and purchased put option price protection programs; and (iii) a $48.9 million loss in
2005 and a $371.3 million loss in 2006 for a cumulative loss of $420.2 million on 2007
zero-premium copper collar and purchased put option price protection programs.(8)
    
    At December 31, 2005, we had entered into copper price protection positions expiring December
2006 and December 2007.(9)
    
    Our non-qualifying natural gas and non-qualifying foreign currency forward programs began in
2006, and we entered into non-qualifying foreign currency swaps in 2005.
  Metals Hedging
 Fair Value Hedges
 Copper Fixed-Price Rod Sales Hedging.
 Cash Flow Hedges
 Metal Purchase Hedging.




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##### Table of Contents



147  Foreign Currency Hedging
 Fair Value Hedges
  Interest Rate Hedging
 Fair Value Hedges
 Fixed-to-Floating Interest Rate Swaps.
 Energy Price Protection Programs
 Cash Flow Hedges
 Diesel Fuel Price Protection Program.
 Natural Gas Price Protection Program.
 Other Protection Programs
  Copper Fixed-Price Rod Sales Program.
 Copper Price Protection Program.
 Copper COMEX-LME Arbitrage Program.




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##### Table of Contents



148  Gold and Silver Price Protection Programs.
 Copper Quotational Period Swap Program.
 Foreign Currency Programs
 Other Diesel Fuel Price Protection Programs.
 Other Natural Gas Price Protection Programs.
 Credit Risk
  Other Financial Instruments
  Cash and Cash Equivalents.
 Investments and Long-Term Receivables.
 Trust Assets.
 Long-Term Debt.
 Other Long-Term Liabilities.




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##### Table of Contents



149  Carrying
    
    FairAmount
    
    ValueCash and cash equivalents
    
    $
    4,972.8
    
    
    
    4,972.8Investments and long-term receivables
(excluding $32.5 million of equity investments
for which it is not practicable to estimate fair value)
    
    $
    160.6
    
    
    
    170.7Trust assets
    
    $
    588.3
    
    
    
    588.3Long-term debt (including amounts due within one year)
    
    $
    858.2
    
    
    
    882.1Other long-term liabilities (including amounts due within
one year)
    
    $
    35.0
    
    
    
    35.0
 24. Business Segment Data




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##### Table of Contents



150   
 FINANCIAL DATA BY GEOGRAPHIC AREA
  2006
    
    2005
    
    2004Sales and other operating revenues:United States
    
    $
    7,306.5
    
    
    
    5,769.8
    
    
    
    4,243.5Latin America*
    
    
    4,135.9
    
    
    
    2,234.1
    
    
    
    1,952.5Other
    
    
    468.0
    
    
    
    283.2
    
    
    
    219.2$
    11,910.4
    
    
    
    8,287.1
    
    
    
    6,415.2Long-lived assets at December 31:United States
    
    $
    4,419.4
    
    
    
    3,868.3
    
    
    
    3,556.2Latin America**
    
    
    2,454.5
    
    
    
    2,052.1
    
    
    
    1,910.4Other
    
    
    141.7
    
    
    
    262.6
    
    
    
    404.0$
    7,015.6
    
    
    
    6,183.0
    
    
    
    5,870.6
 
 *
    
    Sales and other operating revenues in Chile
    
    $
    2,872.2
    
    
    
    1,502.0
    
    
    
    1,398.4Sales and other operating revenues in Peru
    
    $
    672.8
    
    
    
    363.9
    
    
    
    262.0**
    
    Long-lived assets in Chile
    
    $
    1,169.4
    
    
    
    1,278.3
    
    
    
    1,370.7Long-lived assets in Peru
    
    $
    1,219.6
    
    
    
    646.0
    
    
    
    370.5




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##### Table of Contents



151 
 Financial Data By Business Segment
 U.S. Mines
    
    South American MinesChino/
    
    
    
    
    
    Candelaria/
    
    Cerro
    
    
    
    
    
    PrimaryMorenci
    
    Bagdad
    
    Sierrita
    
    Cobre
    
    Tyrone
    
    Ojos del Salado
    
    Verde
    
    El Abra
    
    Molybdenum2006($ in millions)Sales and other operating revenues:Unaffiliated customers
    
    
    
    
    
    
    
    
    
    
    65.6
    
    
    
    41.4
    
    
    
    
    
    
    
    1,009.3
    
    
    
    137.0
    
    
    
    883.3
    
    
    
    1,747.7Intersegment
    
    
    1,551.2
    
    
    
    623.6
    
    
    
    836.4
    
    
    
    411.9
    
    
    
    142.2
    
    
    
    219.6
    
    
    
    535.8
    
    
    
    656.8
    
    
    
    Depreciation, depletion and amortization
    
    
    61.2
    
    
    
    26.6
    
    
    
    18.4
    
    
    
    25.3
    
    
    
    11.8
    
    
    
    40.6
    
    
    
    32.9
    
    
    
    120.0
    
    
    
    42.7Operating income (loss) before special
items and provisions, net
    
    
    822.0
    
    
    
    315.6
    
    
    
    564.9
    
    
    
    172.6
    
    
    
    45.7
    
    
    
    794.7
    
    
    
    418.2
    
    
    
    1,070.9
    
    
    
    432.2Special items and provisions, net
    
    
    (1.4
    )
    
    
    2.2
    
    
    
    (5.1
    )
    
    
    (24.5
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.9Operating income (loss)
    
    
    820.6
    
    
    
    317.8
    
    
    
    559.8
    
    
    
    148.1
    
    
    
    43.5
    
    
    
    794.7
    
    
    
    418.2
    
    
    
    1,070.9
    
    
    
    439.1Interest income
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    15.3
    
    
    
    10.9
    
    
    
    31.1
    
    
    
    0.9Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    28.9
    
    
    
    1.8
    
    
    
    Benefit (provision) for taxes on income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (299.9
    )
    
    
    (9.8
    )
    
    
    (270.6
    )
    
    
    Minority interests in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98.8
    )
    
    
    (210.5
    )
    
    
    (475.2
    )
    
    
    Equity in
net earnings (losses) ofaffiliated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity basis investments at December 31
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    Assets at December 31
    
    
    1,225.8
    
    
    
    495.8
    
    
    
    336.6
    
    
    
    453.2
    
    
    
    176.7
    
    
    
    823.3
    
    
    
    1,821.8
    
    
    
    1,402.4
    
    
    
    920.6Expenditures for segment assets
    
    
    232.7
    
    
    
    28.0
    
    
    
    33.6
    
    
    
    17.8
    
    
    
    17.8
    
    
    
    18.2
    
    
    
    550.9
    
    
    
    19.0
    
    
    
    58.72005($ in millions)Sales and other operating revenues:Unaffiliated customers
    
    
    
    
    
    
    
    
    
    
    15.6
    
    
    
    15.5
    
    
    
    
    
    
    
    543.1
    
    
    
    71.2
    
    
    
    362.8
    
    
    
    1,938.1Intersegment
    
    
    1,012.7
    
    
    
    665.6
    
    
    
    858.6
    
    
    
    321.0
    
    
    
    120.7
    
    
    
    191.4
    
    
    
    292.7
    
    
    
    330.7
    
    
    
    Depreciation, depletion and amortization
    
    
    61.6
    
    
    
    29.1
    
    
    
    15.0
    
    
    
    21.1
    
    
    
    8.8
    
    
    
    37.6
    
    
    
    27.3
    
    
    
    122.1
    
    
    
    39.9Operating income (loss) before special
items and provisions, net
    
    
    400.1
    
    
    
    377.7
    
    
    
    567.6
    
    
    
    49.2
    
    
    
    6.6
    
    
    
    306.8
    
    
    
    209.8
    
    
    
    274.7
    
    
    
    325.1Special items and provisions, net
    
    
    (0.2
    )
    
    
    12.1
    
    
    
    1.2
    
    
    
    (64.5
    )
    
    
    (215.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Operating income (loss)
    
    
    399.9
    
    
    
    389.8
    
    
    
    568.8
    
    
    
    (15.3
    )
    
    
    (209.1
    )
    
    
    306.8
    
    
    
    209.8
    
    
    
    274.7
    
    
    
    324.3Interest income
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    7.4
    
    
    
    7.1
    
    
    
    2.7
    
    
    
    0.6Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    11.7
    
    
    
    (4.7
    )
    
    
    Gain on sale of cost-basis investment, net
of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87.2Change in interest gains, net of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.8
    
    
    
    159.5
    
    
    
    
    
    
    
    Early debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefit (provision) for taxes on income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (226.3
    )
    
    
    17.5
    
    
    
    (123.0
    )
    
    
    Minority interests in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.9
    )
    
    
    (92.7
    )
    
    
    (71.4
    )
    
    
    Equity in net earnings (losses) of affiliated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of accounting change
    
    
    (3.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Equity basis investments at December 31
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    Assets at December 31
    
    
    953.6
    
    
    
    443.1
    
    
    
    323.4
    
    
    
    445.5
    
    
    
    107.2
    
    
    
    825.3
    
    
    
    1,060.1
    
    
    
    1,135.3
    
    
    
    924.4Expenditures for segment assets
    
    
    66.7
    
    
    
    36.2
    
    
    
    18.6
    
    
    
    17.9
    
    
    
    13.3
    
    
    
    14.7
    
    
    
    309.6
    
    
    
    23.2
    
    
    
    38.32004 ($ in millions)Sales and other operating revenues:Unaffiliated customers
    
    
    
    
    
    
    
    
    
    
    9.0
    
    
    
    8.6
    
    
    
    
    
    
    
    456.8
    
    
    
    99.4
    
    
    
    383.4
    
    
    
    985.3Intersegment
    
    
    922.8
    
    
    
    410.9
    
    
    
    512.1
    
    
    
    232.5
    
    
    
    111.7
    
    
    
    234.0
    
    
    
    162.6
    
    
    
    267.1
    
    
    
    Depreciation, depletion and amortization
    
    
    75.3
    
    
    
    24.9
    
    
    
    13.0
    
    
    
    15.4
    
    
    
    13.1
    
    
    
    52.2
    
    
    
    32.2
    
    
    
    121.3
    
    
    
    31.0Operating income (loss) before special
items and provisions, net
    
    
    376.3
    
    
    
    174.9
    
    
    
    264.3
    
    
    
    58.8
    
    
    
    28.7
    
    
    
    303.3
    
    
    
    130.0
    
    
    
    273.7
    
    
    
    103.0Special items and provisions, net
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (5.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating income (loss)
    
    
    375.7
    
    
    
    174.9
    
    
    
    264.3
    
    
    
    57.6
    
    
    
    22.9
    
    
    
    303.3
    
    
    
    130.0
    
    
    
    273.7
    
    
    
    103.3Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.0
    
    
    
    0.3Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.3
    )
    
    
    (2.0
    )
    
    
    (16.8
    )
    
    
    Early debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.2
    )
    
    
    
    
    
    
    (2.8
    )
    
    
    Benefit (provision) for taxes on income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53.3
    )
    
    
    (45.2
    )
    
    
    22.8
    
    
    
    Minority interests in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46.0
    )
    
    
    (16.0
    )
    
    
    (134.8
    )
    
    
    Equity in net earnings (losses) of affiliated companies
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity basis investments at December 31
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    Assets at December 31
    
    
    933.3
    
    
    
    440.8
    
    
    
    320.6
    
    
    
    456.0
    
    
    
    213.9
    
    
    
    889.1
    
    
    
    560.0
    
    
    
    958.8
    
    
    
    835.4Expenditures for segment assets
    
    
    28.2
    
    
    
    24.1
    
    
    
    32.5
    
    
    
    18.6
    
    
    
    16.1
    
    
    
    17.5
    
    
    
    16.4
    
    
    
    12.9
    
    
    
    16.0




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##### Table of Contents



152 Financial Data By Business Segment
 PDI-
    
    Corporate,
    
    Discon-Manufac-
    
    
    
    
    
    PDMC
    
    PDMC
    
    PDMC
    
    Wire &
    
    Other &
    
    tinuedturing
    
    Sales
    
    Segments
    
    Other
    
    Subtotal
    
    Cable
    
    Eliminations
    
    Operations
    
    Totals2006($ in millions)Sales and other operating revenues:Unaffiliated customers
    
    
    6,143.0
    
    
    
    578.0
    
    
    
    10,605.3
    
    
    
    51.1
    
    
    
    10,656.4
    
    
    
    1,254.0
    
    
    
    
    
    
    
    
    
    
    
    11,910.4Intersegment
    
    
    123.8
    
    
    
    58.7
    
    
    
    5,160.0
    
    
    
    (5,105.4
    )
    
    
    54.6
    
    
    
    0.7
    
    
    
    (55.3
    )
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    28.1
    
    
    
    
    
    
    
    407.6
    
    
    
    17.4
    
    
    
    425.0
    
    
    
    15.6
    
    
    
    8.1
    
    
    
    
    
    
    
    448.7Operating income (loss) before special
items and provisions, net
    
    
    (29.2
    )
    
    
    8.1
    
    
    
    4,615.7
    
    
    
    (204.4
    )
    
    
    4,411.3
    
    
    
    73.4
    
    
    
    (164.2
    )
    
    
    
    
    
    
    4,320.5Special items and provisions, net
    
    
    (2.3
    )
    
    
    
    
    
    
    (26.4
    )
    
    
    (19.2
    )
    
    
    (45.6
    )
    
    
    (15.8
    )
    
    
    (32.2
    )
    
    
    
    
    
    
    (93.6
    )Operating income (loss)
    
    
    (31.5
    )
    
    
    8.1
    
    
    
    4,589.3
    
    
    
    (223.6
    )
    
    
    4,365.7
    
    
    
    57.6
    
    
    
    (196.4
    )
    
    
    
    
    
    
    4,226.9Interest income
    
    
    
    
    
    
    
    
    
    
    61.4
    
    
    
    1.6
    
    
    
    63.0
    
    
    
    2.6
    
    
    
    109.5
    
    
    
    
    
    
    
    175.1Interest expense, net
    
    
    (4.3
    )
    
    
    (0.6
    )
    
    
    26.0
    
    
    
    5.3
    
    
    
    31.3
    
    
    
    (9.1
    )
    
    
    (41.2
    )
    
    
    
    
    
    
    (19.0
    )Benefit (provision) for taxes on income
    
    
    
    
    
    
    
    
    
    
    (580.3
    )
    
    
    
    
    
    
    (580.3
    )
    
    
    
    
    
    
    (429.9
    )
    
    
    
    
    
    
    (1,010.2
    )Minority interests in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    (784.5
    )
    
    
    (0.4
    )
    
    
    (784.9
    )
    
    
    (7.5
    )
    
    
    
    
    
    
    
    
    
    
    (792.4
    )Equity in net earnings (losses) of affiliated companies
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.9
    
    
    
    1.0
    
    
    
    1.6
    
    
    
    2.0
    
    
    
    
    
    
    
    4.6Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18.1
    )
    
    
    (18.1
    )Equity basis investments at December 31
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    1.0
    
    
    
    1.9
    
    
    
    7.3
    
    
    
    23.3
    
    
    
    
    
    
    
    32.5Assets at December 31
    
    
    704.8
    
    
    
    109.1
    
    
    
    8,470.1
    
    
    
    316.0
    
    
    
    8,786.1
    
    
    
    594.9
    
    
    
    5,251.3
    
    
    
    
    
    
    
    14,632.3Expenditures for segment assets
    
    
    18.7
    
    
    
    0.1
    
    
    
    995.5
    
    
    
    147.4
    
    
    
    1,142.9
    
    
    
    17.6
    
    
    
    17.9
    
    
    
    9.4
    
    
    
    1,187.82005($ in millions)Sales and other operating revenues:Unaffiliated customers
    
    
    3,336.4
    
    
    
    789.1
    
    
    
    7,071.8
    
    
    
    25.7
    
    
    
    7,097.5
    
    
    
    1,189.6
    
    
    
    
    
    
    
    
    
    
    
    8,287.1Intersegment
    
    
    176.8
    
    
    
    278.4
    
    
    
    4,248.6
    
    
    
    (3,964.0
    )
    
    
    284.6
    
    
    
    0.9
    
    
    
    (285.5
    )
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    30.6
    
    
    
    0.1
    
    
    
    393.2
    
    
    
    10.7
    
    
    
    403.9
    
    
    
    28.8
    
    
    
    9.1
    
    
    
    
    
    
    
    441.8Operating income (loss) before special
items and provisions, net
    
    
    5.9
    
    
    
    1.7
    
    
    
    2,525.2
    
    
    
    (148.0
    )
    
    
    2,377.2
    
    
    
    33.2
    
    
    
    (122.4
    )
    
    
    
    
    
    
    2,288.0Special items and provisions, net
    
    
    (154.0
    )
    
    
    
    
    
    
    (421.9
    )
    
    
    (25.4
    )
    
    
    (447.3
    )
    
    
    (18.6
    )
    
    
    (57.2
    )
    
    
    
    
    
    
    (523.1
    )Operating income (loss)
    
    
    (148.1
    )
    
    
    1.7
    
    
    
    2,103.3
    
    
    
    (173.4
    )
    
    
    1,929.9
    
    
    
    14.6
    
    
    
    (179.6
    )
    
    
    
    
    
    
    1,764.9Interest income
    
    
    
    
    
    
    0.1
    
    
    
    20.1
    
    
    
    0.8
    
    
    
    20.9
    
    
    
    2.0
    
    
    
    36.3
    
    
    
    
    
    
    
    59.2Interest expense, net
    
    
    (3.1
    )
    
    
    (1.0
    )
    
    
    2.4
    
    
    
    3.3
    
    
    
    5.7
    
    
    
    (7.9
    )
    
    
    (60.1
    )
    
    
    
    
    
    
    (62.3
    )Gain on sale of cost-basis investment, net
of expenses.
    
    
    
    
    
    
    
    
    
    
    87.2
    
    
    
    351.2
    
    
    
    438.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    438.4Change in interest gains, net of expenses
    
    
    
    
    
    
    
    
    
    
    168.3
    
    
    
    
    
    
    
    168.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168.3Early debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54.0
    )
    
    
    
    
    
    
    (54.0
    )Benefit (provision) for taxes on income
    
    
    
    
    
    
    
    
    
    
    (331.8
    )
    
    
    
    
    
    
    (331.8
    )
    
    
    
    
    
    
    (245.2
    )
    
    
    
    
    
    
    (577.0
    )Minority interests in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    (185.0
    )
    
    
    0.1
    
    
    
    (184.9
    )
    
    
    (5.5
    )
    
    
    
    
    
    
    
    
    
    
    (190.4
    )Equity in net earnings (losses) of affiliated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    1.3
    
    
    
    2.0
    
    
    
    
    
    
    
    2.7Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.4
    )
    
    
    (17.4
    )Cumulative effect of accounting change
    
    
    (1.9
    )
    
    
    
    
    
    
    (6.9
    )
    
    
    (1.6
    )
    
    
    (8.5
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )
    
    
    (10.1
    )Equity basis investments at December 31
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    1.0
    
    
    
    1.8
    
    
    
    6.3
    
    
    
    23.8
    
    
    
    
    
    
    
    31.9Assets at December 31
    
    
    602.8
    
    
    
    94.6
    
    
    
    6,915.3
    
    
    
    34.0
    
    
    
    6,949.3
    
    
    
    702.6
    
    
    
    2,055.7
    
    
    
    650.4
    
    
    
    10,358.0Expenditures for segment assets
    
    
    22.4
    
    
    
    
    
    
    
    560.9
    
    
    
    61.4
    
    
    
    622.3
    
    
    
    19.5
    
    
    
    15.8
    
    
    
    40.6
    
    
    
    698.22004($ in millions)Sales and other operating revenues:Unaffiliated customers
    
    
    2,519.4
    
    
    
    959.0
    
    
    
    5,420.9
    
    
    
    22.5
    
    
    
    5,443.4
    
    
    
    971.8
    
    
    
    
    
    
    
    
    
    
    
    6,415.2Intersegment
    
    
    228.4
    
    
    
    204.3
    
    
    
    3,286.4
    
    
    
    (3,071.1
    )
    
    
    215.3
    
    
    
    0.5
    
    
    
    (215.8
    )
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    22.5
    
    
    
    
    
    
    
    400.9
    
    
    
    9.8
    
    
    
    410.7
    
    
    
    35.1
    
    
    
    9.7
    
    
    
    
    
    
    
    455.5Operating income (loss) before special
items and provisions, net
    
    
    32.3
    
    
    
    4.1
    
    
    
    1,749.4
    
    
    
    (131.4
    )
    
    
    1,618.0
    
    
    
    30.2
    
    
    
    (111.7
    )
    
    
    
    
    
    
    1,536.5Special items and provisions, net
    
    
    (3.2
    )
    
    
    
    
    
    
    (10.5
    )
    
    
    (0.8
    )
    
    
    (11.3
    )
    
    
    (11.4
    )
    
    
    (38.9
    )
    
    
    
    
    
    
    (61.6
    )Operating income (loss)
    
    
    29.1
    
    
    
    4.1
    
    
    
    1,738.9
    
    
    
    (132.2
    )
    
    
    1,606.7
    
    
    
    18.8
    
    
    
    (150.6
    )
    
    
    
    
    
    
    1,474.9Interest income
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    0.5
    
    
    
    5.0
    
    
    
    0.7
    
    
    
    6.0
    
    
    
    
    
    
    
    11.7Interest expense, net
    
    
    (4.1
    )
    
    
    (0.5
    )
    
    
    (29.7
    )
    
    
    4.2
    
    
    
    (25.5
    )
    
    
    (6.0
    )
    
    
    (91.4
    )
    
    
    
    
    
    
    (122.9
    )Early debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    (18.0
    )
    
    
    
    
    
    
    (18.0
    )
    
    
    
    
    
    
    (25.2
    )
    
    
    
    
    
    
    (43.2
    )Benefit (provision) for taxes on income
    
    
    
    
    
    
    
    
    
    
    (75.7
    )
    
    
    
    
    
    
    (75.7
    )
    
    
    
    
    
    
    (55.6
    )
    
    
    
    
    
    
    (131.3
    )Minority interests in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    (196.8
    )
    
    
    
    
    
    
    (196.8
    )
    
    
    (4.3
    )
    
    
    
    
    
    
    
    
    
    
    (201.1
    )Equity in net earnings (losses) of affiliated companies
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    0.5
    
    
    
    2.3
    
    
    
    
    
    
    
    1.9Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.7
    
    
    
    22.7Equity basis investments at December 31
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    14.4
    
    
    
    14.9
    
    
    
    5.9
    
    
    
    23.9
    
    
    
    
    
    
    
    44.7Assets at December 31
    
    
    466.9
    
    
    
    37.5
    
    
    
    6,112.3
    
    
    
    (9.9
    )
    
    
    6,102.4
    
    
    
    614.2
    
    
    
    1,212.1
    
    
    
    665.4
    
    
    
    8,594.1Expenditures for segment assets
    
    
    24.1
    
    
    
    0.1
    
    
    
    206.5
    
    
    
    40.7
    
    
    
    247.2
    
    
    
    25.2
    
    
    
    13.9
    
    
    
    31.0
    
    
    
    317.3




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##### Table of Contents



153 25. Inco Termination Fee




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##### Table of Contents



154 PHELPS DODGE CORPORATION
2006 Annual Report on Form 10-K
 
 PART III
 
 Items 10, 11, 12, 13 and 14.
   http://www.phelpsdodge.com
 
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)1.
    
    Financial Statements:Consolidated Statement of
Income, page 105.Consolidated Balance Sheet, page
106.Consolidated Statement of Cash
Flows, page 107.Consolidated Statement of
Shareholders Equity, pages 108 and 109.2.
    
    Financial Statement Schedule:Valuation and Qualifying
Accounts and Reserves, page 160.3.
    
    Exhibits:
 3.1
    
    Restated Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).3.2
    
    Amendment to the Restated Certificate of Incorporation of Phelps Dodge Corporation
(incorporated by reference to Exhibit 2.3 of the Companys Registration Statement on Form
8-A, filed with the SEC on June 10, 2002 (SEC File No. 1-82)).3.3
    
    Amendment to the Restated Certificate of Incorporation of Phelps Dodge Corporation
(incorporated by reference to Appendix B of the Companys 2005 definitive Proxy Statement
filed April 15, 2005 (SEC File No. 1-82)).3.4
    
    Complete composite copy of the Certificate of Incorporation of the Company as amended
to date (incorporated by reference to Exhibit 3.2 of the Companys Form 10-Q for the
quarter ended June 30, 2005 (SEC File No. 1-82)).3.5
    
    Amended and Restated By-Laws of the Company, effective as of September 5, 2001
(incorporated by reference to Exhibit 3.2 of the Companys Form 10-Q for the quarter ended
September 30, 2001 (SEC File No. 1-82)).4.1
    
    Credit Agreement, effective April 20, 2004, among the Company, the Lenders parties
thereto, the book manager and syndication agents named therein, and Citibank, N.A., as
administrative agent for the Lenders (incorporated by reference to Exhibit 4.1 of the
Companys Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-82)).4.2
    
    Amendment No. 1 to the Credit Agreements, dated April 1, 2005, among the Company, the
Lenders parties thereto, the book manager and syndication agents named therein, and
Citibank, N.A., as administrative agent for the Lenders (incorporated by reference to
Exhibit 4.1 of the Companys Form 10-Q for the quarter ended March 31, 2005 (SEC File No.
1-82)).4.3
    
    Rights Agreement, dated as of February 5, 1998, between the Company and The Chase
Manhattan Bank (which replaces the Rights Agreement, dated as of July 29, 1988, as amended
and restated as of December 6, 1989, the rights issued thereunder having been redeemed by
the Company), which includes the form of Certificate of Amendment setting forth the terms
of the Junior Participating Cumulative Preferred Shares, par value $1.00 per share, as
Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1 of the
Companys Current Report on Form 8-K and in the Companys Form 8-A, both filed on February
6, 1998 (SEC File No. 1-82)).




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155 
  4.4
    
    Form of Indenture, dated as of September 22, 1997, between the Company and The Chase
Manhattan Bank, as Trustee (incorporated by reference to the Companys Registration
Statement and Post-Effective Amendment No. 1 on Form S-3 (Registration Nos. 333-36415 and
33-44380)) filed with the Securities and Exchange Commission on September 25, 1997
(incorporated by reference to Exhibit 4.3 of the Companys Form 10-Q for the quarter ended
September 30, 1997 (SEC File No. 1-82)).4.5
    
    Form of 7.125 percent Debenture, due November 1, 2027, of the Company issued on
November 5, 1997, pursuant to the Indenture, dated as of September 22, 1997, between the
Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to the
Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 3, 1997 and Exhibit 4.5 of the Companys Form 10-Q for the quarter ended September
30, 1997 (SEC File No. 1-82)).4.6
    
    Tripartite/Conversion Agreement, dated as of August 8, 2000, among Chase Manhattan Bank
and First Union National Bank, and acknowledged by the Company, pursuant to which First
Union National Bank succeeded Chase Manhattan Bank as trustee under the Indenture, dated as
of September 22, 1997 (incorporated by reference to the Companys Registration Statement on
Form S-3 (Reg. No. 333-43890) filed with the Securities and Exchange Commission on August
16, 2000).4.7
    
    Form of 8.75 percent Note due June 1, 2011, of the Company issued on May 30, 2001,
pursuant to the Indenture dated September 22, 1997, between the Company and First Union
National Bank, as successor Trustee (incorporated by reference to the Current Report on
Form 8-K filed with the Securities and Exchange Commission on May 30, 2001 (SEC File No.
1-82)).4.8
    
    Form of 9.5 percent Note due June 1, 2031, of the Company issued on May 30, 2001,
pursuant to the Indenture, dated as of September 22, 1997, between the Company and First
Union National Bank, as successor Trustee (incorporated by reference to the Current Report
on Form 8-K filed with the Securities and Exchange Commission May 30, 2001 (SEC File No.
1-82)).4.9
    
    Form of Common Share Certificate of the Company (incorporated by reference to Exhibit
4.9 of the Companys Form 10-Q for the quarter ended June 30, 2002 (SEC File No. 1-82)).4.10
    
    Form of 6.75 percent Series A Mandatory Convertible Preferred Share Certificate of the
Company (incorporated by reference to Exhibit 4.10 of the Companys Form 10-Q for the
quarter ended June 30, 2002 (SEC File No. 1-82)).4.11
    
    Form of 6.125 percent Note due March 15, 2034, of the Company issued on March 4, 2004,
pursuant to the Indenture, dated as of September 22, 1997, between the Company and First
Union National Bank, as successor Trustee.10
    
    Management contracts and compensatory plans and agreements.10.1
    
    The Companys 1989 Directors Stock Option Plan (the 1989 Directors Plan), as amended to
and including June 3, 1992, suspended effective November 6, 1996 (incorporated by reference
to Exhibit 10.3 of the Companys Form 10-Q for the quarter ended June 30, 1992 (SEC File
No. 1-82)). Form of Stock Option Agreement under the 1989 Directors Plan (incorporated by
reference to the Companys Registration Statement on Form S-8 (Reg. No. 33-34362)).10.2
    
    The Companys 1993 Stock Option and Restricted Stock Plan (the 1993 Plan), as amended
through December 1, 1993, and form of Restricted Stock Letter under the 1993 Plan
(incorporated by reference to Exhibit 10.4 of the Companys 1993 Form 10-K (SEC File No.
1-82)). Amendment to 1993 Plan effective May 7, 1997 (incorporated by reference to Exhibit
10.15 of the Companys Form 10-Q for the quarter ended June 30, 1997 (SEC File No. 1-82)).
Amended and restated form of Stock Option Agreement, amended through February 5, 1997
(incorporated by reference to Exhibit 10.3 of the Companys 1997 Form 10-K (SEC File No.
1-82)).
  10.3
    
    Description of the Companys Annual Incentive Compensation Plan (incorporated by
reference to the Companys Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 6, 2006 (SEC File No. 1-82)).10.4
    
    Amended and restated Deferred Compensation Plan for the Directors of the Company, dated
as of December 3, 1998, effective January 1, 1999 (incorporated by reference to Exhibit
10.5 of the Companys 1998 Form 10-K (SEC File No. 1-82)).




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156 
 10.5
    
    Form of Change of Control Agreement between the Company and certain executives
(incorporated by reference to Exhibit 10.5 of the Companys 2002 Form 10-K (SEC File No.
1-82)).10.6
    
    Amended and restated form of Severance Agreement between the Company and certain
executives (incorporated by reference to Exhibit 10.7 of the Companys 1997 Form 10-K (SEC
File No. 1-82)).10.7
    
    The Companys Retirement Plan for Directors, effective January 1, 1988, terminated for
active directors effective December 31, 1997 (incorporated by reference to Exhibit 10.13 of
the Companys 1987 Form 10-K (SEC File No. 1-82)).10.8
    
    The Companys Supplemental Retirement Plan (which amends and restates the provisions of
the Companys Supplemental Retirement Plan, which was effective (except as otherwise noted
therein) as of January 1, 1997), effective (except as otherwise provided therein) as of
January 1, 2001 (incorporated by reference to Exhibit 10.8 of the Companys 2003 Form 10-K
(SEC File No. 1-82)).10.9
    
    The Companys Supplemental Savings Plan (which amends and restates the provisions of
the Companys Supplemental Savings Plan, which was effective (except as otherwise noted
therein) as of January 1, 1997), effective (except as otherwise noted therein) as of
January 1, 2003 (incorporated by reference to Exhibit 10.9 of the Companys 2003 Form 10-K
(SEC File No. 1-82)).10.10
    
    The Companys Directors Stock Unit Plan effective January 1, 1997 (incorporated by
reference to Exhibit 10.10 of the Companys 1996 Form 10-K (SEC File No. 1-82)) as amended
and restated, effective January 1, 1998 (incorporated by reference to Exhibit 10.11 of the
Companys 1997 Form 10-K (SEC File No. 1-82)). First Amendment to Plan, effective as of
January 1, 2001 (incorporated by reference to Exhibit 10.11 of the Companys Form 10-Q for
the quarter ended June 30, 2000 (SEC File No. 1-82)). Second Amendment to Plan, effective
for awards as of January 1, 2005 (incorporated by reference to Exhibit 10.10 of the
Companys 2004 Form 10-K (SEC File No. 1-82)). Third Amendment to Plan, dated February 1,
2006 (incorporated by reference to the Companys 2005 Form 10-K (SEC File No. 1-82)).10.11
    
    The Companys 1998 Stock Option and Restricted Stock Plan (the 1998 Plan) and forms
Restricted Stock Agreement under the 1998 Plan, effective March 4, 1998 (incorporated by
reference to Exhibit 10.12 of the Companys Form 10-Q for the quarter ended June 30, 1998
(SEC File No. 1-82)), and amended form of Stock Option Agreement, effective June 22, 1999
(incorporated by reference to the Companys Form 10-Q for the quarter ended June 30, 1999
(SEC File No. 1-82)) and amended Form of Restricted Stock Letter Agreement, effective as of
July 8, 2002 (incorporated by reference to the Companys Form 10-Q for the quarter ended
September 30, 2002 (SEC File No. 1-82)). First Amendment to the 1998 Plan, effective as of
May 4, 2000 (incorporated by reference to Exhibit 10.12 of the Companys Form 10-Q for the
quarter ended June 30, 2000 (SEC File No. 1-82)).
  10.12
    
    The Companys 2003 Stock Option and Restricted
Stock Plan (the 2003 Plan), and forms of: (i) Stock Option Agreement; (ii) Supplement A to
Stock Option Agreement; (iii) Supplement B to Stock Option Agreement; (iv) Restricted Stock
Letter Agreement; (v) Restricted Stock Letter Agreement (cliff vesting), each effective May
23, 2003 (incorporated by reference to Exhibit 10.14 of the Companys Form 10-Q for the
quarter ended June 30, 2003 (SEC File No. 1-82)); form of Restricted Stock Letter (graduated
vesting) (incorporated by reference to Exhibit 10.14 of the Companys Form 10-Q for the
quarter ended September 30, 2003 (SEC File No. 1-82)); and form of amended Restricted Stock
letters (graduated and cliff vesting), effective February 3, 2004 (incorporated by reference
to Exhibit 10.12 of the Companys 2003 Form 10-K (SEC File No. 1-82)).
  10.13
    
    Letter of employment by and between Phelps Dodge Corporation and James P. Berresse
(incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 22, 2005 (SEC File No.
1-82)). Amendment dated February 6, 2006 (incorporated by reference to the Companys 2005
Form 10-K (SEC File No. 1-82)).10.14
    
    Amended and restated form of Change of Control Agreement adopted by the Company on
February 1, 2005, for agreements entered into between the Company and its named executive
officers and other members of its senior management team on or after this adoption date.10.15
    
    Amended and restated form of Change of Control Agreement adopted by the Company on
February 1, 2005, for agreements entered into between the Company and a second group of the
Companys key management personnel on or after this adoption date.




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157 
 10.16
    
    Amended and restated form of Severance Agreement adopted by the Company on February 1,
2005, for agreements entered into between the Company and certain of its executives on or
after this adoption date.10.17
    
    Phelps Dodge Corporation 2006 Executive Performance Incentive Plan (incorporated by
reference to Appendix A of the Companys 2005 definitive Proxy Statement filed April 15,
2005 (SEC File No. 1-82)).10.18
    
    Agreement and General Release, dated as of December 31, 2005, between the Corporation
and David L. Pulatie (incorporated by reference to the Companys 2005 Form 10-K (SEC File No.
1-82)).10.19
    
    Participation Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation,
Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals Company, a Delaware
corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a
Japanese corporation, Summit Global Management, B.V. a Dutch corporation, Sumitomo Metal
Mining Co., Ltd., a Japanese corporation, Compañía de Minas Buenaventura S.A.A., a Peruvian
sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad
anonima abierta (incorporated by reference to Exhibit 10.1 of the Companys Form 8-K filed
March 22, 2005 (SEC File No. 1-82)).10.20
    
    Guarantee, dated as of March 16, 2005, among the Company, Sumitomo Corporation, a
Japanese corporation, and Sumitomo Metal Mining Co., Ltd., a Japanese corporation
(incorporated by reference to Exhibit 10.2 of the Companys Form 8-K filed March 22, 2005
(SEC File No. 1-82)).10.21
    
    Shareholders Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation,
Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese
corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Summit Global
Management B.V., a Dutch corporation, SMM Cerro Verde Netherlands, B.V., a Dutch
corporation, Compañía de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta,
and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta (incorporated
by reference to Exhibit 10.1 of the Companys Form 8-K filed June 7, 2005 (SEC File No.
1-82)).10.22
    
    Master Participation Agreement, dated as of September 30, 2005, among Sociedad Minera
Cerro Verde S.A.A., Japan Bank for International Cooperation, Sumitomo Mitsui Banking
Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal
Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New
York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.1 of the
Companys Form 10-Q for the quarter ended September 30, 2005). First Amendment to Master
Participation Agreement, dated as of December 16, 2005 (incorporated by reference to the
Companys 2005 Form 10-K (SEC File No. 1-82)).10.23
    
    Completion Guarantee, dated as of September 30, 2005, among Sumitomo Metal Mining Co.,
Ltd., Sumitomo Corporation, Compañía de Minas Buenaventura S.A.A., Phelps Dodge
Corporation, Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation,
The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland
plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch (as
Administrative Agent) (incorporated by reference to Exhibit 10.2 of the Companys Form 10-Q
for the quarter ended September 30, 2005).10.24
    
    Master Security Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro
Verde S.A.A., Japan Bank for International Cooperation, Sumitomo Mitsui Banking
Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal
Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd., Calyon New York
Branch (as Administrative Agent), Citibank, N.A. and Citibank del Peru S.A. (incorporated
by reference to Exhibit 10.3 of the Companys Form 10-Q for the quarter ended September 30,
2005).10.25
    
    Transfer Restrictions Agreement, dated as of September 30, 2005, among SMM Cerro Verde
Netherlands, B.V., Compañía de Minas Buenaventura S.A.A., Cyprus Climax Metals Company,
Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Phelps Dodge Corporation, Japan Bank
for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of
Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The
Bank of Nova Scotia, Mizuho Corporate Bank, Ltd., and Calyon New York Branch (as
Administrative Agent) (incorporated by reference to Exhibit 10.4 of the Companys Form 10-Q
for the quarter ended September 30, 2005).10.26
    
    JBIC Loan Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde
S.A.A., Japan Bank of International Cooperation, and Sumitomo Mitsui Banking Corporation
(as JBIC Agent) (incorporated by reference to Exhibit 10.5 of the Companys Form 10-Q for
the quarter ended September 30, 2005). First Amendment to JBIC Loan Agreement, dated as of
December 19, 2005 (incorporated by reference to the Companys 2005 Form 10-K (SEC File No.
1-82)).10.27
    
    KfW Loan Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro
Verde S.A.A. and KfW (incorporated by reference to Exhibit 10.6 of the Companys Form 10-Q
for the quarter ended September 30, 2005).




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158 
 10.28
    
    Loan Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde
S.A.A., Calyon New York Branch (as Administrative Agent), Calyon New York Branch, Mizuho
Corporate Bank, Ltd., The Bank of Nova Scotia, and The Royal Bank of Scotland plc
(incorporated by reference to Exhibit 10.7 of the Companys Form 10-Q for the quarter ended
September 30, 2005).10.29
    
    Parent Company Guarantee, dated as of September 30, 2005, between Phelps Dodge
Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee is with respect to the
Operators Agreement, dated June 1, 2005, between Sociedad Minera Cerro Verde S.A.A. and
Minera Phelps Dodge del Peru S.A.C.) (incorporated by reference to Exhibit 10.8 of the
Companys Form 10-Q for the quarter ended September 30, 2005).10.30
    
    Parent Company Guarantee, dated as of September 30, 2005, between Phelps Dodge
Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee is with respect to (i)
the Concentrate Sales Agreement, dated as of September 30, 2005, between Sociedad Minera
Cerro Verde S.A.A. and Phelps Dodge Sales Company Incorporated, and (ii) the Cathodes Sales
Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and
Phelps Dodge Sales Company Incorporated) (incorporated by reference to Exhibit 10.9 of the
Companys Form 10-Q for the quarter ended September 30, 2005).10.31
    
    Master Agreement and Plan of Merger between Columbian Chemicals Company, Columbian
Chemicals Acquisition LLC and Columbian Chemicals Merger Sub, Inc., dated November 15, 2005
(incorporated by reference to the Companys 2005 Form 10-K (SEC File No. 1-82)).10.32
    
    Asset and Stock Purchase Agreement between Phelps Dodge Corporation, Phelps Dodge
Industries, Inc. and Rea Magnet Wire Company, Inc., dated November 15, 2005 (incorporated
by reference to the Companys 2005 Form 10-K (SEC File No. 1-82)).10.33
    
    Phelps Dodge Corporation Retiree Medical Plan Welfare Benefit Trust Agreement between
Phelps Dodge Corporation and The Northern Trust Company, dated December 15, 2005
(incorporated by reference to the Companys 2005 Form 10-K (SEC File No. 1-82)).10.34
    
    Reclamation and Remediation Trust Agreement between Phelps Dodge Corporation and Wells
Fargo Delaware Trust Company, dated December 22, 2005 (incorporated by reference to the
Companys 2005 Form 10-K (SEC File No. 1-82)).10.35
    
    Phelps Dodge Corporation 2007 Directors Stock Unit Plan effective January 1, 2007, as
approved by the Companys shareholders on May 26, 2006 (incorporated by reference to
Appendix A of the Companys 2006 definitive Proxy Statement filed April 13, 2006 (SEC File
No. 1-82)).10.36
    
    Combination Agreement between the Company and Inco Ltd., dated as of June 25, 2006
(incorporated by reference to a Form 8-K filed on July 17, 2006 (SEC File No. 1-82)).10.37
    
    Waiver and Amendment to Combination Agreement between the Company and Inco Ltd., dated
as of July 16, 2006 (incorporated by reference to a Form 8-K filed on July 17, 2006) (SEC
File No. 1-82)).10.38
    
    Termination Agreement between the Company and Inco Ltd., dated as of September 5, 2006
(incorporated by reference to a Form 8-K filed on September 5, 2006 (SEC File No. 1-82)).10.39
    
    Agreement and Plan of Merger among Phelps Dodge Corporation, Freeport-McMoRan Copper &
Gold Inc. and Panther Acquisition Corporation, dated as of November 18, 2006 (incorporated
by reference to Exhibit 2.1 of the Companys Form 8-K filed November 20, 2006 (SEC File No.
1-82)).10.40
    
    Amendment No. 1 to Rights Agreement, dated as of November 18, 2006, between Phelps
Dodge Corporation and Mellon Investor Services LLC, as successor in interest to The Chase
Manhattan Bank (incorporated by reference to Exhibit 2.2 of the Companys Form 8-K filed
November 20, 2006 (SEC File No. 1-82)).10.41
    
    First Amendment to the Phelps Dodge 2003 Stock Option and Restricted Stock Plan, dated
as of December 6, 2006 (filed herewith).10.42
    
    Agreement and Plan of Merger, dated as of November 18, 2006, by and among
Freeport-McMoRan Copper & Gold Inc., Phelps Dodge Corporation and Panther Acquisition
Corporation, as amended January 17, 2007 (incorporated by reference to Appendix A to the
Joint Proxy Statement/Prospectus filed February 12, 2007 (SEC File No. 1-82)).10.43
    
    Separation Agreement between Phelps Dodge Corporation and Kalidas V. Madhavpeddi, effective as of April 3, 2006 (filed herewith).10.44
    
    Form of Stock Option Agreement for grants made in 2007 under the 2003 Stock Option and Restricted Stock Plan (filed herewith).10.45
    
    Form of Restricted Stock Letter Agreement for awards made in 2007 for named executive officers under the 2003 Stock Option and Restricted Stock Plan (filed herewith).11
    
    Computation of per share earnings.12.1
    
    Computation of ratios of earnings to fixed charges.12.2
    
    Computation of ratios of total debt to total capitalization.21
    
    List of Subsidiaries and Investments.




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159 23
    
    Consent of PricewaterhouseCoopers LLP.24
    
    Powers of Attorney executed by certain officers and
directors who signed this Annual Report on Form 10-K.
  31
    
    Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the
Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the
Company, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and
Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to 18
United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.




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160  
 Phelps Dodge Corporation and Consolidated Subsidiaries
Valuation and Qualifying Accounts and Reserves
 AdditionsBalance at
    
    
    Charged to
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    
    
    
    
    at endof period
    
    
    expenses
    
    
    Other
    
    
    Deductions
    
    
    of periodReserve deducted in balance sheet
from the asset to which applicable:Accounts Receivable:December 31, 2006
    
    $
    6.9
    
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    1.1
    
    
    
    6.3December 31, 2005
    
    $
    17.4
    
    
    
    0.2
    
    
    
    (8.0
    ) (A)
    
    
    2.7
    
    
    
    6.9December 31, 2004
    
    $
    10.1
    
    
    
    6.4
    
    
    
    2.2
    
    
    
    1.3
    
    
    
    17.4Supplies:December 31, 2006
    
    $
    29.0
    
    
    
    3.4
    
    
    
    0.1
    
    
    
    1.3
    
    
    
    31.2December 31, 2005
    
    $
    33.0
    
    
    
    3.3
    
    
    
    4.2
    (B)
    
    
    11.5
    
    
    
    29.0December 31, 2004
    
    $
    31.8
    
    
    
    4.1
    
    
    
    1.8
    
    
    
    4.7
    
    
    
    33.0Deferred Tax Assets:December 31, 2006
    
    $
    363.5
    
    
    
    (318.2
    )
    
    
    0.8
    
    
    
    
    
    
    
    46.1December 31, 2005
    
    $
    282.8
    
    
    
    118.0
    
    
    
    
    
    
    
    37.3
    
    
    
    363.5December 31, 2004
    
    $
    461.3
    
    
    
    (232.8
    )
    
    
    54.3
    (C)
    
    
    
    
    
    
    282.8
 
 (A)
    
    Consists primarily of the transfer to current assets held for sale ($8.3 million).(B)
    
    Consists primarily of impairment charges ($6.2 million); net of the transfer to current assets held for sale ($1.8 million).(C)
    
    Valuation allowance relating to El Abras net deferred tax assets recorded in conjunction with the implementation of Financial Accounting Standards Boards
Interpretation No. 46, Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51, and the revised interpretation.




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161 
 Signatures
  PHELPS DODGE CORPORATION(Registrant) February 27, 2007
    
    By:
    
    /s/ Ramiro G. PeruRamiro G. PeruExecutive Vice Presidentand Chief Financial Officer
  Chairman, Chief Executive Officer and Director/s/ J. Steven Whisler
    
    (Principal Executive Officer)
    
    February 27, 2007J. Steven WhislerExecutive Vice President and Chief Financial Officer/s/ Ramiro G. Peru
    
    (Principal Financial Officer)
    
    February 27, 2007Ramiro G. PeruVice President and Controller/s/ Denise R. Danner
    
    (Principal Accounting Officer)
    
    February 27, 2007Denise R. Danner(Archie W. Dunham, William A. Franke, Robert D. Johnson, Marie L. Knowles, Charles C. Krulak, Jon C. Madonna,
Dustan E. McCoy, Gordon R. Parker, William J. Post, Martin H. Richenhagen, Jack E. Thompson, Directors)
    
    February 27, 2007By:
    
    /s/ Ramiro G. PeruRamiro G. PeruAttorney-in-fact




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GLOSSARY OF TERMS
  Agitation-leach plant
    
    A processing plant that recovers copper and other metals by passing a slurry of finely ground ores mixed with
acidic solutions through a series of continuously stirred tanks.Adjudication
    
    A court proceeding to determine all rights to the use of water on a particular stream system or groundwater
basin.Alluvial aquifers
    
    A water-bearing deposit of unconsolidated material left behind by a river or other flowing water.Anode
    
    A positively charged metal sheet, usually lead, on which oxidation occurs. During the electro-refining process,
the anodes are impure copper sheets from the smelting process that require further processing to produce
refined copper cathodes.Arbitrage
    
    Matching positions to secure a profit by exploiting price difference on the same good sold in different markets.Assay
    
    An analytical technique used to determine the amount or proportion of a particular metal in an ore or
concentrate.Azurite
    
    A bluish supergene copper mineral and ore found in the oxidized portions of copper deposits often associated
with malachite.Bench
    
    The horizontal floor cuttings along which mining progresses in an open-pit mine. As the pit progresses to lower
levels, safety benches are left in the walls to catch any falling rock.Blasthole stoping
    
    An underground mining method that extracts the ore zone in large vertical rooms. The ore is broken by blasting
using large-diameter vertical drill holes.Block cave
    
    A general term used to describe an underground mining method where the extraction of ore depends largely on the
action of gravity. By continuously removing a thin horizontal layer at the bottom mining level of the ore
column, the vertical support of the ore column is removed and the ore then caves by gravity.Bornite
    
    A red-brown isometric mineral comprising copper, iron and sulfur.Brochantite
    
    A greenish-black copper mineral occurring in the oxidation zone of copper sulfide deposits.Brownfield expansion
    
    The expansion of an existing operation.By-product
    
    A secondary metal or mineral product that is recovered along with the primary metal or mineral during the ore
concentration process.Call option
    
    An option that provides the right, but not the obligation, to buy an underlying futures contract at a specified
strike price for a specified time.Care-and-maintenance
    
    The status of a mining operation when mining has been suspended but activities associated with closing the
facility have not commenced. The mine and associated equipment are cared for and maintained until operations
re-commence.Carrollite
    
    A cubic sulfide of cobalt with small amounts of copper, iron and
nickel.Cash flow hedge
    
    A derivative instrument that hedges the exposure to variability in expected cash flows that is attributable to
a particular risk. That exposure may be associated with an existing recognized asset or liability or a
forecasted transaction.Cathode
    
    See copper cathode.Chalcocite
    
    A grayish copper sulfide mineral, usually found as a supergene in copper
deposits formed from the re-deposition of copper minerals that were solubilized from the oxide portion of the
deposit.Chalcopyrite
    
    A brass-yellow sulfide of mineral copper and iron.Chrysocolla
    
    A bluish-green to emerald-green oxide copper mineral that forms incrustations and thin seams in oxidized parts
of copper-mineral veins; a source of copper and an ornamental stone.Cobalt
    
    A tough, lustrous, nickel-white or silvery-gray metallic element often associated with nickel and copper ores
from which it is obtained as a by-product.Collars
    
    Consist of the simultaneous purchase of a put option and the sale of a call option by purchasing an
out-of-the-money (OTM) put option while simultaneously writing an OTM call option.




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163 Concentrate
    
    The resulting product from the concentrating process that is composed predominantly of copper sulfide or
molybdenum sulfide minerals. Further processing might include smelting and electro-refining, or roasting.Concentrate leach plant
    
    A plant that uses a hydrometallurgical process to leach copper from concentrates in a pressure leach vessel,
which removes the copper from the concentrate and places it into solution. The solubilized copper can then be
extracted from the solution in an electrowinning plant that produces copper cathodes.Concentrating
    
    The process by which ore is separated into metal concentrates through crushing, milling and flotation.Concentrator
    
    A process plant used to separate targeted minerals from gangue and produce a mineral concentrate that can be
marketed or processed by additional downstream processes to produce salable metals or mineral products. Term is
used interchangeably with Mill.Contained copper
    
    The percentage of copper in a mineral sample before the reduction of amounts unable to be recovered during the
metallurgical process.Continuous-cast
    
    A process using a continuous flow of liquid metal that is solidified to produce copper products.Copper cathode
    
    Refined copper produced by electro-refining of impure copper or by electrowinning.Copper pitch
    
    A jet-black to brownish material carrying from 12 percent to 84 percent copper oxide.Copper clay
    
    Clays containing intertwined copper making it difficult, or uneconomic, to separate the copper from gangue
materials.Copper sulfate
    
    A solid copper product of blue crystals formed by evaporation and crystallization from a sulfate solution
containing copper.Covellite
    
    A metallic, indigo-blue supergene mineral found in copper deposits.Crushed-ore leach pad
    
    A slightly sloping pad upon which leach ores are placed in lifts for processing.Cutoff grade
    
    The minimum percentage of copper contained in the ore for processing. When percentages are below this grade,
the material would be routed to a high-lift or waste stockpile. When percentages are above grade, the material
would be processed using concentrating or leaching methods for higher recovery.Decree
    
    An order that has the force of law.Derivative
    
    An exchange-traded or over-the-counter (OTC) financial instrument whose value depends on the performance of an
underlying commodity, currency, interest rate or security.Disseminations
    
    Said of a mineral deposit in which the desired minerals occur as scattered particles in the rock and can be
of sufficient quantity to make the deposit ore.Electro-refining
    
    A process that uses electricity to turn impure copper anodes, created in the smelting process, into pure copper
cathodes. Electro-refining is the final step for the recovery of copper from sulfide ores when smelting
technology is utilized.Electrowinning
    
    A process that uses electricity to plate copper contained in an electrolyte solution into copper cathode.Embedded derivative
    
    A host contract that contains a pricing mechanism, which is an option. The option is inseparable from the host
contract and, therefore, cannot be traded separately.Exchange forward curve
    
    A pattern of currency exchange rates at varying points in the future.Fair value hedge
    
    A derivative instrument that hedges the exposure to changes in the fair value of an existing recognized asset
or liability, or an unrecognized firm commitment or an identified portion thereof due to its fixed terms.Firm commitment
    
    An agreement with a third party, which is binding on both parties and usually legally enforceable and includes
(i) all significant terms, including the quantity, fixed price and timing of the transaction and (ii) a
disincentive for nonperformance that is sufficiently large to make performance probable.Flotation
    
    A concentrating process in which valuable minerals attach themselves to bubbles of an oily froth for separation
as concentrate. The gangue material from the flotation process reports as a tailing product.Forward exchange contract
    
    Agreement to exchange a predetermined amount of currency, commodity or other financial instrument at a
specified future date at a predetermined rate.Forward price
    
    A predetermined delivery price for an underlying commodity, currency or financial asset to be paid at a
predetermined date in the future.




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164 Forward rate
    
    A rate of interest or currency exchange to be paid, or received, on an obligation beginning at a predetermined
time in the future.Futures contract
    
    An exchange-listed contract to buy or sell a standard amount of a specified asset, instrument or commodity, at
an agreed price, on a given date as listed on the exchange. A future differs from an option in that both
parties are obligated to abide by the transaction. Futures have standard delivery dates, trading terms and
conditions and operate on a margining system with a clearinghouse acting as a counterpart to all transactions.Gangue
    
    Mostly non-metallic and usually the valueless portion of minerals in ores.Grade
    
    The relative quality or percentage of metal content.Greenfield expansion
    
    An investment that involves the start up of a new project that may include the development of infrastructure.Heap leaching
    
    Newly mined run-of-mine (ROM) material (intermediate grade, oxides and secondary sulfides) is deposited in a
stockpile and leached. ROM material may be leached as mined or may be partially crushed and mixed with acid
prior to depositing in lifts on the heap.Hedge
    
    Establishing an opposite exposure position in a futures or OTC market by means of an option, swap or futures
contract from that held and priced in a physical commodity or financial market. Without hedging, the physical
or financial exposure would be at risk to price or rate fluctuations.Heterogenite
    
    A cobalt mineral containing up to 4 percent copper oxide.Intrinsic value
    
    The actual value of a security. Intrinsic value is the difference between the strike price of an
in-the-money option and the market price of the hedged item. In the case of a swap or futures contract,
intrinsic value is the difference between the market price of the hedged item and the swap or futures
price.ISO 9000
    
    A family of standards and guidelines for quality in the manufacturing and service industries from the
International Organization for Standardization (ISO). ISO 9000 certification does not guarantee product
quality, it ensures that the processes that develop the product are documented and performed in a quality
manner.Leach stockpiles
    
    A quantity of leachable ore placed on a leach pad or in another suitable location that permits leaching and
collection of solutions that contain solubilized metal.Leaching
    
    The process of extracting copper using a chemical solution to dissolve copper contained in ore.Malachite
    
    A bright-green copper mineral (ore) that often occurs with azurite in oxidized zones of
copper deposits.Mark-to-market
    
    The valuation at fair value, using prevailing market prices, at a specified point in time.Metallurgy
    
    The science of separating metals and metallic minerals from their ores by mechanical and chemical processes.Metric ton
    
    The equivalent of 2,204.62 pounds.Mill
    
    Refer to the term Concentrator.Mill stockpile
    
    Millable ore that has been mined and placed at the plant, and is available for future processing.Milling
    
    A process used to grind ore into fine particles using a horizontal, rotating steel cylinder for further processing.Mine-for-leach
    
    A mining operation focused on mining only leachable ores.Mineralized material
    
    A mineralized body that has been delineated by appropriately spaced drilling and/or underground sampling to
support the reported tonnage and average grade of metals.Mineralization
    
    The process by which a mineral is introduced into a rock, resulting in concentration of minerals that may form a
valuable or potentially valuable deposit.Molybdenite
    
    A black, platy, disulfide of molybdenum. It is the most common ore of molybdenum.On-off pad
    
    A type of prepared area for the placement and leaching of ores that are removed after the economic portion of
their contained minerals has been extracted through leaching.Ore
    
    Rock from a mine that has an economical metal or mineral content.Ore body
    
    A continuous, well-defined mass of mineralized material of sufficient ore content to make extraction economically
feasible.Ore reserve
    
    The part of a mineral deposit that could be legally and economically extracted or produced at the time of the
reserve determination.




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165 Out-of-the-money option
    
    An option for which the future price is below the strike price for a call or above the strike price for a put.Oxide
    
    In mining, oxide is used as an ore classification relating to material that usually leaches well but does not
perform well in a concentrator. Oxide minerals in mining refer to an oxidized form.Oxide zone
    
    The portion of a mineral deposit in which the original sulfide mineralization has been altered into oxides,
carbonates and sulfate minerals due to percolating waters carrying oxygen, carbon dioxide or other gases.Oxidized deposit
    
    A deposit that has resulted from oxidation of the original sulfide mineralization.Patented
claim
    
    A mining claim or land to which a deed has been secured from the government in compliance with the laws relating
to such claims.Permanent pad
    
    The site where ore is placed for leach processing and the ore is not removed from the location after extraction of
the economic portion of the mineralization by leaching. New ores are placed on top of the previously leached ores.Porphyry
    
    A deposit in which minerals of copper, molybdenum, gold or, less commonly, tungsten and tin are disseminated or
occur in stock-work of small veinlets within a large mass of hydro-thermally altered igneous rock. The host rock
is commonly an intrusive porphyry, but other rocks intruded by a porphyry can also be hosts for ore minerals.Portal
    
    The rock face or entrance to a drift, tunnel, adit or underground entry.Premium
    
    In relation to an option, it is the market price. Its two components are time value and intrinsic value.Primary zone
    
    The hypogene portion of a mineral deposit that has not been altered by leaching and secondary enrichment, and
characteristics of the mineralization are most likely to persist at depth.Probable material
    
    Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven
material, but the sites for inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven material, is high enough to assume
continuity between points of observation.Production
    
    That which is produced or made; any tangible result of industrial or other labor. The yield or output of a mine,
metallurgical plant or quarry.Production level
    
    With respect to underground mining, the elevation of the underground works that permit extraction/transport of the
ore to a common point, shaft or plant.Production well
    
    A permitted well that produces significant flows of water used in the processing of ores.Proven material
    
    Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill
holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection,
sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape,
depth and mineral content of reserves are well established.Pseudomalachite
    
    A dark-green monoclinic copper mineral.Pump tested
    
    A water well that has been qualified as a reliable source of future production water using a method that measures
water-table drawdown after a defined period of sustained pumping.Put option
    
    An option that provides the right, but not the obligation, to sell an underlying futures contract at a specified
strike price for a specified time.Reclamation
    
    The process of restoring land used in mining activities for future beneficial use.Recovery
    
    An indication of how much material is collected from a process.Refining
    
    The final stage of metal production in which remaining impurities are removed.Rhenium
    
    A rare, silvery-white metal that can occur with molybdenum.Roasting
    
    The heating of sulfide ores to oxidize sulfides to facilitate further processing.Run-of-Mine (ROM)
    
    Leachable ore that is mined and directly placed on a leach pad without utilizing any further processes to reduce
particle size prior to leaching.Seismic
    
    (a) Pertaining to, characteristic of, or produced by earthquakes or earth vibration; as, seismic disturbances;
seismic records.
(b) Pertaining to sound waves generated by earthquakes or artificially by
explosives to map subsurface structure.Seismic zone
    
    A regional designation pertaining to the anticipated frequency and strength of earthquakes based on
historical information.




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166 Short ton
    
    The equivalent of 2,000 pounds.Skarn
    
    A Swedish mining term for silicate gangue of certain iron ore and sulfide deposits of Archaean age,
particularly those that have replaced limestone and dolomite. Its meaning has been generally expanded to
include lime-bearing silicates, of any geologic age, derived from nearly pure limestone and dolomite
with the introduction of large amounts of silicon, aluminum, iron and magnesium.Smelter
    
    A downstream processing plant where ores or concentrates of minerals are smelted to produce metal.Smelting
    
    The process of melting and oxidizing concentrates to separate copper and precious metals from metallic
and non-metallic impurities, including iron, silica, alumina and sulfur.Solution extraction
    
    A process that transfers copper from a copper-bearing ore to an organic solution, then to an
electrolyte. The electrolyte is then pumped to a tankhouse where the copper is extracted, using
electricity, into a copper cathode (refer to the term Electrowinning).Spot price
    
    The current price at which a commodity can be bought or sold at a specified time and place.Stope
    
    An underground mining method that is usually applied to highly inclined or vertical veins. Ore is
extracted by driving horizontally upon it in a series of workings, one immediately over the other. Each
horizontal working is called a stope because when a number of them are in progress, each working face
under attack assumes the shape of a flight of stairs.Strike price
    
    The price paid or received by the buyer when exercising an option.Sublevel stoping
    
    An underground mining method in which ore is excavated in open stopes, retreating from one end of the
stope toward the other. Its characteristic feature is the use of sublevels.Sulfide
    
    A mineral compound containing sulfur and a metal. Copper sulfides can be concentrated or leached,
depending on the mineral type.Surface miner
    
    A large, track-mounted mining machine that uses teeth on a rotating drum to break in-situ rock into
smaller fragments to facilitate mining (eliminates the need for drilling/blasting of the rock and
primary crushing).Swap
    
    An agreement between two counterparties to exchange two streams of cash flow. One of the cash flows is
based on a fixed value for the underlying and the other is based on a floating value.Tailing
    
    The material remaining after economically recoverable metals and minerals have been extracted.Time value
    
    In relation to an option, it is the premium minus intrinsic value.Tolling
    
    The process of converting customer-owned, copper-bearing or molybdenum-bearing material into specified
products, which is then returned to the customer.Underlying
    
    The product or instrument that an option contract or a futures contract is based upon.Unilateral administrative 
order
    
    A legally binding document issued by the U.S. Environmental Protection Agency (EPA) directing the parties
potentially responsible to perform site cleanups or studies. Generally, EPA does not issue unilateral
orders for site studies.Unpatented
claim
    
    A mining claim to which a deed from the government has not been received. Such claims are usually
subject to annual assessment work to maintain ownership.Veinlets
    
    A series or swarm of small, thin veins in a mineral deposit.