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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 2

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission file number 1-82

PHELPS DODGE CORPORATION

(a New York corporation)

13-1808503
(I.R.S. Employer Identification No.)

One North Central Avenue, Phoenix, AZ 85004-2306

Registrants telephone number: (602) 366-8100

Securities registered pursuant to Section 12(b) of the Act:

|                                         |  |                        
|---------------------------------------- |  | -----------------------
|                                         |  | Name of each exchange  
|Title of each class                      |  | on which registered    
|                                         |  |                        
|                                         |  |                        
|Common Shares, $6.25 par value per share |  | New York Stock Exchange
|Mandatory Convertible Preferred Shares,  |  |                        
|$1.00 par value per share                |  | New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.   Yes   [x]    No   [ ].

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   [x]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act).    Yes   [x]    No   [ ].

The aggregate market value of Common Shares of the issuer held by
nonaffiliates
at April 9, 2003, was approximately $2,892,046,398.

Number of Common Shares outstanding at
April 9, 2003: 88,986,043 shares.

Documents Incorporated by Reference:

|                                        |  |                 
|--------------------------------------- |  | ----------------
|Document                                |  | Location in 10-K
|                                        |  |                 
|Proxy Statement for 2003 Annual Meeting |  | Part III        



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- 2 -

Explanatory Note

This
Form 10-K/A constitutes Amendment No. 2 to the Registrant's 10-K for
the fiscal year ended December 31, 2002.  This Form 10-K/A is being
filed solely for the purpose of correcting a typographical error in
the date heading on the Ore Reserves table on page 17 of Part I,
Items 1 and 2. The date heading now correctly reads "Total
Reserves Estimated at December 31, 2001". There are no other changes
to the Registrant's Form 10-K, as amended by Amendment No. 1 thereto.





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- 1 -

PHELPS DODGE CORPORATION

2002 Annual Report on Form 10-K

Part I

Restatements

Phelps Dodge Corporation (the Company,
which also may be referred to as
Phelps Dodge, PD, we, us or ours) identified certain accounting matters
relating to our December 31, 2001 and 2000, Consolidated Financial Statements
that require restatement. The matters subject to adjustment, which are
summarized below and discussed in Note 22 to the Consolidated Financial
Statements increased retained earnings by $22.9 million at December 31, 2001 to
reflect the after-tax effect of such items. These adjustments were necessary
(i) to change the Companys units-of-production depreciation rate methodology
for mining, smelting and refining assets to exclude estimates of future capital
as well as any material other than proven and probable ore reserves, and to
depreciate short-lived assets on a straight-line basis over their estimated
useful lives, less salvage value; (ii) to adjust the fair value estimates of
acquired reclamation obligations and to recognize the related annual accretion
expense, and to revise certain reclamation cost estimates and associated
charges for information obtained in 2001; (iii) to capitalize as inventory
copper contained in low-grade mill and leach stockpiles, and consequent
in-process materials being converted to salable products; (iv) to reverse a
loss contingency reserve associated with legal matters; and (v) to increase the
valuation allowance for deferred tax assets. Additionally, as discussed in
Note 21, Business Segment Data, our presentation of reportable segment
information for Phelps Dodge Mining Company for 2001 and 2000 has been revised
to reflect additional segments.

Items 1. and 2. Business and Properties

The Company is the worlds second
largest producer of copper, among the
worlds largest carbon black and magnet wire producers, and is the worlds
largest producer of continuous-cast copper rod. On October 16, 1999, we
acquired Cyprus Amax Minerals Company (Cyprus Amax or Cyprus). As a result of
the acquisition, we also became one of the worlds largest producers/processors
of molybdenum and molybdenum products.

The Company consists of two major
divisions: (i) Phelps Dodge Mining
Company (PDMC) and (ii) Phelps Dodge Industries (PDI).



| | (i)  |  | PDMC includes our worldwide, vertically integrated copper
operations from mining through rod production, marketing and
sales; molybdenum operations from mining through conversion,
marketing and sales; other mining operations and investments;
and worldwide mineral exploration and development programs.
PDMC comprises 11 reportable segments  Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre and Tyrone (located
in the United States), Candelaria, Cerro Verde and El Abra
(located in South America), Manufacturing and Sales, Primary
Molybdenum and Other Mining.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | PDI comprises two reportable
segments   Specialty
Chemicals and Wire and Cable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

In 2002, PDMC produced 1,028,800 tons of
copper for our account from
worldwide mining operations, and an additional 246,800 tons of copper for the
accounts of our minority interest joint-venture partners. Gold, silver,
molybdenum, rhenium and sulfuric acid are by-products of our copper and
molybdenum operations. Production of copper for our own account from our U.S.
operations constituted approximately 49 percent of the copper mined in the
United States in 2002. Much of our U.S. cathode copper production, together
with additional copper purchased from others, is used to produce
continuous-cast copper rod, the basic feed for the electrical wire and cable
industry. We also explore for metals and minerals throughout the world.

Our South American mining operations
include Candelaria and El Abra, major
copper mines in Chile, the Cerro Verde copper mine in Peru, and other
operations and investments in Chile and Peru. These operations produce a
variety of metals and minerals including copper, gold and silver.

High-purity, chemical-grade molybdenum
concentrate is produced at our
Henderson mine in Colorado. Most of the concentrate produced at Henderson is
roasted at our Fort Madison roasters and then further processed at the facilitys chemical plant into
value-added molybdenum chemical products.
In addition, some of the concentrate is processed into salable molysulfide for
use primarily in the lubricant industry.

Molybdenum concentrate is also produced
as a by-product at two of our U.S. copper operations.





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This concentrate is generally roasted at one of our three
roasting operations to produce technical grade molybdic oxide for sale into the
metallurgical markets (i.e., steel industries).

In addition to our mining interests, we
produce engineered products
principally for the global energy, telecommunications, transportation and
specialty chemicals sectors through PDI.

We produce specialty chemicals at
operations in North America, Europe,
South America and Asia through Columbian Chemicals Company, one of the worlds
largest producers of carbon black. Carbon black is a reinforcing agent in
natural and synthetic rubber that increases the service life of tires, hoses,
belting and other products for the rubber industry. We also produce specialty
carbon black for other industrial applications such as pigments for printing,
coatings, plastics and other non-rubber applications.

Our Wire and Cable segment has
operations in the United States, Latin
America, Asia, Europe and Africa. This segment produces magnet wire and other
copper products for sale principally to original equipment manufacturers for
use in electrical motors, generators, transformers and other products, and
manufactures copper and aluminum energy cables, telecommunications cables and
specialty conductors.

Note 21 to our Consolidated Financial
Statements contained herein includes
financial data for each of the last three years relating to our business
segments, including data by geographic area.

Phelps Dodge was incorporated as a
business corporation under the laws of
the state of New York in 1885. Our world headquarters is located in Phoenix,
Arizona, and is a leased property. We employed approximately 13,500 people
worldwide on December 31, 2002.

Throughout this document, unless otherwise
stated, all references to tons
are to short tons, and references to ounces are to troy ounces.

Available Information.Phelps
Dodge files annual, quarterly and current
reports, proxy statements and other information with the U.S. Securities and
Exchange Commission (the SEC). You may read and copy any document we file at
the SECs public reference room at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the
public reference room. The SEC maintains a Web site that contains annual,
quarterly and current reports, proxy statements and other information that
issuers (including Phelps Dodge) file electronically with the SEC. The SECs
Web site is http://www.sec.gov.

Phelps Dodges Web site is
http://www.phelpsdodge.
com. Phelps Dodge makes available free of charge through its Internet site,
via a link to the SECs Web site at http://www.sec.gov, its annual reports on
Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Forms
3, 4 and 5 filed on behalf of directors and executive officers; and any
amendments to those reports filed or furnished pursuant to the Securities
Exchange Act of 1934 as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC.

Phelps Dodge makes available free of
charge on http://www. phelpsdodge.comits
most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for
the current fiscal year, its most recent proxy statement and its most recent
summary annual report to shareholders, although in some cases these documents
are not available on our site as soon as they are available on the SECs site.
You will need to have on your computer the Adobe Acrobat Reader software to
view some of these documents, which are in PDF format. If you do not have
Adobe Acrobat, a link to Adobes Internet site, from which you can download the
software, is provided. The information on Phelps Dodges Web site is not
incorporated by reference into this report.

PHELPS DODGE MINING COMPANY

PDMC is our international business division
that comprises our vertically
integrated copper operations from mining through rod production, primary
molybdenum operations through conversion, marketing and sales, and worldwide
exploration. PDMC comprises 11 reporting segments.

Our copper mines comprise five reportable
segments in the United States
(Morenci, Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, and Tyrone) and three
reportable segments in South America (Candelaria, Cerro Verde and El Abra).
These segments include open-pit mining, sulfide ore concentrating and
electrowinning. In addition, they produce gold and silver, and the Bagdad and
Sierrita mines also produce molybdenum and rhenium, as by-products.

The Manufacturing and Sales segment
consists of conversion facilities
including our smelters, refineries and rod mills, as well as sales and
marketing. The Manufacturing and Sales segment sells copper to others
primarily as rod, cathode or concentrate, and as rod to our Wire and Cable
segment. In addition, at times it smelts and refines copper and produces
copper rod for customers on a toll basis. Toll





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arrangements require the
tolling customer to deliver appropriate copper-bearing material to our
facilities, which we then process into a product that is returned to the
customer. The customer pays PDMC for processing its material into the
specified products.

The Primary Molybdenum segment consists
of the Henderson and Climax mines
and related conversion facilities. This segment is an integrated producer of
molybdenum, with mining, roasting and processing facilities producing
high-purity, molybdenum-based chemical and metallurgical products. In
addition, at times it roasts and/or processes material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate
molybdenum-bearing material to our facilities, which we then process into a
product that is returned to the customer. The customer pays PDMC for
processing its material into the specified products.

Other Mining segment includes our
worldwide mineral exploration and
development programs, a process technology center that directs its activities
at improving existing processes and developing new cost-competitive
technologies, and other ancillary operations.

Our five reportable U.S. Mines segments
(Morenci, Bagdad/Sierrita,
Miami/Bisbee, Chino/Cobre, and Tyrone), the Manufacturing and Sales segment and
the Other Mining segment are discussed herein together, where appropriate, as
U.S. Mining Operations.

Our U.S. Mining Operations (defined above)
and our South American Mines
(Candelaria, Cerro Verde and El Abra segments) are discussed herein together,
where appropriate, as our Worldwide Copper Mining Operations.

Properties, Facilities and Production

Following is a map indicating the
approximate location of PDMCs U.S.
copper and molybdenum mines:

United States Mines

U.S. Mines

We produce electrowon copper cathode at
solution extraction/electrowinning
(SX/EW) operations near Tyrone and Silver City, New Mexico (Tyrone and Chino
mines, respectively); and Morenci, Miami (currently curtailed), Bagdad
(partially curtailed) and Green Valley (partially curtailed), Arizona (Morenci,
Miami, Bagdad and Sierrita mines, respectively). We produce copper concentrate
from open-pit mines and concentrators located at Bagdad and Green Valley,
Arizona (Bagdad and Sierrita mines, respectively); and Silver City, New Mexico
(currently curtailed, Chino mine).

We are the worlds leading producer
of copper using the SX/EW process. In
2002, we produced a total of 578,700 tons of cathode copper at our SX/EW
facilities in the United States, compared with 585,300 tons in 2001 and 510,200
tons in 2000. SX/EW is a cost-effective process for extracting copper from
cer-





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tain types of ores. SX/EW is a major factor in our continuing efforts to
maintain internationally competitive costs. Our total annual capacity of
electrowon copper cathode production currently is 410,000 tons at Morenci,
105,000 tons at Miami, 75,000 tons at Chino, 84,000 tons at Tyrone, 25,000 tons
at Sierrita and 16,000 tons at Bagdad.

The Morenci complex in southeastern
Arizona comprises an open-pit mine, a
concentrator, four solution extraction facilities and three electrowinning
tankhouses. We operate Morenci and own an 85 percent undivided interest; the
remaining 15 percent interest is owned by Sumitomo Metal Mining Arizona, Inc.
(Sumitomo), a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd., and
Sumitomo Corporation. Each partner takes in kind its share of Morenci
production. Morenci is the largest copper producing operation in North
America.

In 2001, the Company completed its
$220 million mine-for-leach project at
Morenci. As a result, the Morenci concentrator was placed on
care-and-maintenance status. The crushing facility at the Metcalf concentrator
continues to process approximately 85,000 tons of ore daily for the expanded
leach operation. The new mine-for-leach facilities increased Morencis annual
electrowon cathode production capacity to 410,000 tons. Under certain
favorable economic circumstances, Morenci may produce concentrates from primary
sulfide ores.

In 1999, the Metcalf concentrator was
permanently closed as a result of
rebalancing PDMC operations. After the 1999 acquisition of Cyprus Amax and the
Companys decision to convert Morenci to mine-for-leach processing, it became
clear that the Metcalf concentrator would not likely operate in the future.
This resulted in a pre-tax impairment of $88 million recorded in 1999.

We are presently a party to litigation that
could adversely impact the
allocation of available water supplies for the Morenci operation and our other
properties in Arizona. (Refer to Item 3, Legal Proceedings, for information
concerning the status of these proceedings.)

Our wholly owned Bagdad mine in
northwestern Arizona primarily mines
copper sulfide ore. It produces copper and molybdenum concentrates and minor
amounts of silver. The operation consists of an open-pit mine, sulfide ore
concentrator producing copper and molybdenum concentrates, and a leaching
system with an SX/EW operation producing copper cathode. In January 2002, as a
result of the then-current economic environment, Bagdads mill throughput was
curtailed temporarily to approximately one-half capacity. At the time of this
curtailment, we estimated that approximately 70,500 tons of annual copper
production and 7 million pounds of annual by-product molybdenum production
would be reduced. In 2002, copper production at Bagdad exceeded our estimates
due to improved production from our SX/EW operation, higher ore grades from
normal mine planning improvements, and improvements in copper recovery and
improved milling efficiency resulting from Quest for Zeroactions. As a
result, 2002 annual copper production was reduced by approximately 44,600 tons.
Throughput at Bagdad also exceeded half capacity at various times during the
year, primarily driven by smelter and sulfuric acid supply requirements.

In February 2002, we announced that
Bagdad would construct an
approximately $40 million copper concentrate leaching demonstration plant
designed to recover commercial-grade copper cathode from chalcopyrite
concentrates. The plant is scheduled to commence production in the second
quarter of 2003. At full capacity, the plant is expected to produce 35 million
pounds of copper cathode from concentrate annually. If successful, this
technique could assist in our long-term cost reduction strategy.

We own the Sierrita mine near Green Valley,
Arizona. The facility
consists of an open-pit mine, sulfide ore concentrator producing copper and
molybdenum concentrates, two molybdenum roasters and a rhenium processing
facility. Sierrita also uses an oxide and low-grade sulfide ore stockpile
leaching system with an SX/EW operation to produce copper cathode. Sierritas
on-site roasters process molybdenum concentrates produced at Sierrita and
Bagdad as well as purchased concentrates or concentrates tolled for third
parties. The resulting metallurgical grade molybdic oxide and related products
are either packaged for shipment to customers worldwide or transported to other
Phelps Dodge facilities for further processing. At year-end 2001, as a result
of the then-current economic environment, mill throughput at the Sierrita mine
was reduced temporarily to approximately one-half of its capacity. Our
estimates at the time were that these actions would eliminate approximately
49,600 tons of annual copper production and 7 million pounds of by-product
molybdenum. In 2002, copper production at Sierrita exceeded our estimates due
to improved production from higher ore grades from normal mine planning
improvements, improvements in copper recovery and improved milling efficiency
resulting from Quest for Zeroactions, and smelter and acid supply
requirements. As a result, 2002 annual copper production was reduced by
approximately 44,200 tons.

Our wholly owned operations at Miami,
Arizona, consist of an open-pit
copper mine, an SX/EW operation producing copper cathode, a smelter, an





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acid
plant, an electrolytic refinery and a copper rod plant. In January 2002, as a
result of the then-current economic environment, the Miami mine and refinery
were closed temporarily. Our estimate at the time was that this curtailment
action would eliminate approximately 49,600 tons of annual copper production.
In 2002, Miamis copper production was improved by higher than expected output
from residual leach stockpiles, various other improvements resulting from Quest
for Zeroactions, and the use of smelter weak acid in leaching operations. As
a result, 2002 annual copper production was reduced by approximately 30,400
tons.

We operate an open-pit copper mine,
concentrator and SX/EW facility near
Silver City, New Mexico, and a smelter in Hurley, New Mexico, that are owned by
Chino Mines Company (Chino), a general partnership in which we hold a
two-thirds interest. Heisei Minerals Corporation (Heisei), a subsidiary of
Mitsubishi Materials Corporation and Mitsubishi Corporation, owns the remaining
one-third interest in Chino. Each partner purchases its proportionate share of Chinos copper
production each month. Beginning in late 1998 and through the first half of 1999,
production was curtailed resulting in a reduction of approximately 35,000 tons
of annual copper production. In March 2001, the concentrator was temporarily
shut down, and in January 2002, the Chino mine and smelter were closed
temporarily. Our estimates at the time were that these actions would eliminate
approximately 144,400 tons of annual copper production. We anticipated that
residual leaching operations at Chino would become uneconomic by mid-year 2002.
However, copper recoveries from leach stockpiles have been better than
anticipated and leaching operations are now expected to remain economic for
several more years, even with the mine curtailed. As a result, 2002 annual
copper production was reduced by approximately 97,400 tons.

Phelps Dodge operates its wholly owned
Tyrone open-pit mine and SX/EW
plant near Tyrone, New Mexico. Tyrone has been a mine-for-leach operation
since 1992. The Tyrone mine is currently operating at less than full capacity
due to current unfavorable market conditions.

In February 1998, we acquired Cobre Mining
Company Inc. (Cobre) located in
southwestern New Mexico adjacent to our Chino operations. The primary assets
of Cobre include an open-pit copper mine, two underground copper mines, two
mills, and the surrounding 11,000 acres of land, including mineral rights. In
late 1998 and early 1999, all of these operations were indefinitely suspended,
reducing copper production by approximately 35,000 tons per year. The entire
Cobre operation remains on care-and-maintenance status. In December 2002, the
Company recognized an impairment charge to write-down Cobres assets by $115.5
million (before and after taxes). We took this action after revising mine
plans and assessing recoverability. The impairment assessment used a copper
price lower than the prior-year assumption. The copper price used was based on
the historical moving average copper price for the past 10 years, which we
believe to be indicative of full economic and pricing cycles for copper. The
amount of Cobres impairment was determined through an assessment of projected
discounted cash flows for the remaining ore reserves.

South American Mines

We produce electrowon copper cathode at
SX/EW operations near Arequipa,
Peru; and near Calama, Chile. We produce copper concentrate from open-pit
mines and concentrators located near Copiapó, Chile. We also produce copper
concentrate from two underground mines and a concentrator located near Copiapó,
Chile (currently curtailed).

Following is a map indicating the
approximate location of PDMCs South
American mines:

South American Mines





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We operate the Candelaria mine located
near Copiapó in the Atacama Desert
of northern Chile. The operation presently consists of an open-pit copper
mine, concentrator, port and associated facilities. We own an 80 percent
partnership interest in Candelaria, a Chilean contractual mining company,
through Phelps Dodge Candelaria, Inc., a wholly owned subsidiary. Sumitomo
Metal Mining Co., Ltd. and Sumitomo Corporation own the remaining 20 percent
interest.

Phelps Dodge owns a 51 percent
partnership interest in Sociedad
Contractual Minera El Abra (El Abra), a Chilean contractual mining company. El
Abra holds mining concessions over more than 33,000 acres of land near Calama
in the copper-rich Second Region of northern Chile. The remaining 49 percent is
owned by the state-owned copper enterprise Corporación Nacional del Cobre de
Chile (CODELCO). The El Abra operation, which began commercial production in
the second half of 1996, consists of a mine-for-leach, open-pit mining
operation that uses three stages of crushing prior to leaching, an on/off leach
pad, and an SX/EW operation to produce copper cathode. In 2001, El Abra
completed a $70 million project (including our partners share) to leach
uncrushed run-of-mine (ROM) material. The ROM project allows El Abra to
maintain tankhouse design capacity. ROM production began in January 2002, with
full production from the project achieved in the second half of 2002.

We own approximately 82 percent of
the common stock of Sociedad Minera
Cerro Verde S.A.A. (Cerro Verde). Compañia de Minas Buenaventura S.A., a
long-established Peruvian mining concern, owns approximately 9 percent and the
employees of Cerro Verde and other shareholders own approximately 9 percent.
The Cerro Verde operation, located approximately 30 kilometers southwest of
Arequipa, Peru, consists of two open pits, Cerro Verde and Santa Rosa, a
heap-leach operation and an SX/EW operation to produce copper cathode. The ore
is processed through primary, secondary and tertiary crushers and placed on a
leach pad after agglomeration.

Until the fourth quarter of 1998, we
produced copper concentrate from two
underground mines and a concentrator located near Copiapó, Chile, through our
wholly owned Chilean subsidiary, Compañía Contractual Minera Ojos del Salado
(Ojos del Salado). We suspended operations indefinitely at Ojos del Salado in
October 1998, resulting in a reduction of more than 22,000 tons of annual
copper production. The Ojos del Salado operations remain on
care-and-maintenance status.

In 2002, we produced a total of 343,500
tons of cathode copper at our
SX/EW facilities in South America, compared with 324,700 tons in 2001 and
296,100 tons in 2000. Our total annual capacity of electrowon copper cathode
production currently is 248,000 tons at El Abra and 95,000 tons at Cerro Verde.

Manufacturing and Sales Segment

We own and operate a copper smelter in
Miami, Arizona, and, through Chino
Mines Company, a two-thirds interest in the Chino smelter in Hurley, New
Mexico. In January 2002, the Chino smelter was temporarily closed. We smelt
virtually all of our share of our U.S. copper concentrate production and,
depending on market circumstances and internal production requirements, some
concentrate production from Candelaria. In addition, we may purchase
concentrate to keep our smelters operating at efficient levels.

In September 1999, we suspended
operations at our Hidalgo smelter in
Hidalgo County, New Mexico, due to a general lack of concentrate availability
in the United States and depressed copper market fundamentals (this suspension
was coincident with the closure of the Metcalf concentrator as previously
discussed). As a result of the successful acquisition of Cyprus Amax and the
decision to convert Morenci to a mine-for-leach operation, we concluded that
Hidalgo would likely not be operated in its historic configuration in the
foreseeable future. Accordingly, a pre-tax write-down of the Hidalgo assets of
$201.5 million was taken in 1999. However, it was anticipated at the time that
Hidalgo may have a future use for sulfuric acid production for the Companys
leach operations. In December 2002, the Company recognized an impairment
charge to write-down Hidalgos assets by an additional $12.9 million (before
and after taxes). As a result of the Companys ability to use acid more
efficiently and an updated assessment of PDMCs long-term acid production and
consumption balance, the Company determined that Hidalgo probably will not be
reconfigured to produce acid as originally anticipated and that the net book
value of Hidalgo assets probably would not be recovered. Hidalgos power
facilities will continue to generate electricity when needed, and the facility
will continue to be a backup alternative as a reliable producer of acid if
conditions warrant. The remaining Hidalgo assets were written down to their
estimated fair value. The Company also recognized a $7.0 million (before and
after taxes) charge for the estimated remaining costs of its closure obligation
at Hidalgo.

We refine our share of anode copper
production from our smelters at our
refineries in El Paso, Texas, and Miami, Arizona. During 2002, 2001 and 2000,
the El Paso refinery operated significantly below capacity due to the late 1999
third quarter closing of the Hidalgo smelter. The closure of the Hidalgo
smelter resulted not only in a curtailment of operations





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at the El Paso refinery, but also a reduction of approximately 200 refinery jobs.
Our Miami
refinery has an annual production capacity of about 200,000 tons of copper
cathode, and the El Paso refinery has an annual production capacity of about
450,000 tons of copper cathode. The total combined capacity of about 650,000
tons of electrolytic copper per year is sufficient to refine all the anode
copper we produce for our account at our operating smelters, as well as anodes
from other customers that we refine on a toll basis. As a result of production
curtailments announced in the fourth quarter of 2001, the Miami refinery
temporarily was closed. Our refineries also produce copper sulfate, nickel
sulfate, copper telluride, and autoclaved slimes material containing gold,
silver, selenium, platinum and palladium.

We are the worlds largest producer
of continuous-cast copper rod, the
basic feed for the electrical wire and cable industry. Most of our refined
copper, and additional purchased copper, is converted into rod at our
continuous-cast copper rod facilities in El Paso, Texas; Norwich, Connecticut;
Miami, Arizona; and Chicago, Illinois. Our four plants have a collective
annual capacity to convert more than 1.1 million tons of refined copper into
rod and other refined copper products.

Primary Molybdenum Segment

See United States Mines map on page 3 for
the location of our molybdenum
mines.

Phelps Dodge owns the underground
Henderson molybdenum mine near Empire,
Colorado. The operation consists of an underground block-caving mine where
molybdenite ore is mined and transported to a conventional sulfide
concentrator. The concentrator is capable of operating at a rate of 32,000 tons
of ore per day, producing molybdenum disulfide concentrate containing up to 58 percent molybdenum.
Most of the concentrate is shipped to our Fort Madison roasting and chemical
processing facility in Iowa where a number of different high-purity products
are made for final sale to customers. A portion of Hendersons production is
further refined and sold to customers as molysulfide. In 1999, Hendersons
mine was modernized (i) to replace a 20-year old underground and surface rail
transportation system with a modern conveyor and (ii) to develop a new
production level using more efficient high-lift caving methods.

In May 2000, as a result of an oversupply of
molybdenum and continued low
prices in the world market, Phelps Dodge announced a plan to curtail molybdenum
production by approximately 20 percent and reduce its Henderson workforce by
approximately 130 workers. In 2002, the previously announced production
curtailment remained essentially in place.

Phelps Dodge also owns the Climax
molybdenum mine near Leadville,
Colorado. The operation consists of both an underground and open-pit mine, and
a 16,000 ton-per-day concentrator. The Climax molybdenum mine had been placed
on care-and-maintenance in 1995 by the predecessor owner. At year-end 2002, as
well as at the acquisition, we expected to bring Climax into production
concurrent with the exhaustion of the Henderson molybdenum mine reserves for
continued long-term primary molybdenum supply for the chemicals business. The
property occupies more than 14,000 acres.

Phelps Dodge processes molybdenum
concentrates at its conversion plants in
the United States and Europe into such products as technical grade molybdic
oxide, ferromolybdenum, pure molybdic oxide, ammonium molybdates and
molysulfide. The Company operates molybdenum roasters at Green Valley,
Arizona; Fort Madison, Iowa; and Rotterdam, The Netherlands.

The Fort Madison, Iowa, facilities consist of
two molybdenum roasters, a
sulfuric acid plant, a metallurgical (technical oxide) packaging facility, and
a chemical conversion plant, which includes a wet chemicals plant and
sublimation equipment. In the chemical plant, molybdic oxide is further
refined into various high-purity molybdenum chemicals for a wide range of uses
by chemical and catalyst manufacturers. The Fort Madison facilities produce
ammonium dimolybdate, pure molybdic oxide, ammonium heptamolybdate, ammonium
octamolybdate, sodium molybdate, sublimed pure molybdic oxide and molysulfide.

The Rotterdam conversion plant consists of
a molybdenum roaster, sulfuric
acid plant, a metallurgical packaging facility and a chemical conversion plant.
The plant produces metallurgical products primarily for third parties.
Ammonium dimolybdate and pure molybdic oxide are produced in a wet chemical
plant.

We also produce ferromolybdenum and
molysulfide at our conversion plant
located in Stowmarket, United Kingdom, both for European and worldwide
customers. The plant is operated both as an internal and external customer
tolling facility.

Worldwide Copper Production by Source,
Other Metal Production and Sales
Data, and Manufacturing and Sales Production

The following tables show our worldwide
copper production by source for
the years 1998 through 2002; aggregate production and sales data for copper,





---



##### 



- 8 -

gold, silver, molybdenum and sulfuric acid from these sources for the same
years; annual average copper and molybdenum prices; and production from our
smelters and refineries. Major changes in operations during the five-year
period included:



| |  |  | completion of the run-of-mine leach project at El Abra in
2002;                                                                                                                                                                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;                                                                                                                            
|
| |  |  | temporary closure of the Miami mine and refinery in January
2002;                                                                                                                                                                                                                                                                 
|
| |  |  | curtailment of mill throughput at Sierrita and Bagdad to approximately
one-half capacity in January 2002;                                                                                                                                                                                                                         
|
| |  |  | conversion of Morenci operations to mine-for-leach during 1999
and 2000, with completion in the 2001 first quarter;                                                                                                                                                                                                               
|
| |  |  | partial curtailment of Henderson operations beginning in the
2000 second quarter;                                                                                                                                                                                                                                                 
|
| |  |  | acquisition of Cyprus Amax on October 16, 1999 (the primary
assets acquired included the Bagdad, Sierrita, Miami, El Abra and
Cerro Verde copper mines; the Henderson and Climax molybdenum mines;
a copper smelter, refinery and two rod plants; three molybdenum
roasting operations and four molybdenum conversion facilities);
|
| |  |  | permanent closure of Morencis Metcalf concentrator at the end of
1999;                                                                                                                                                                                                                                                           
|
| |  |  | temporary closure of the Hidalgo smelter facilities in September
1999;                                                                                                                                                                                                                                                            
|
| |  |  | acquisition of Cobre in February 1998 followed by suspension of
underground mining in October 1998 and the remaining facilities in
March 1999;                                                                                                                                                                                    
|
| |  |  | suspension of operations at Ojos del Salado in October 1998;
and                                                                                                                                                                                                                                                                  
|
| |  |  | completion of the Southwest solution extraction project at Morenci in the
1998 third quarter.                                                                                                                                                                                                                                     





---



##### 



- 9 -

Phelps Dodge Copper Production Data, by Source (a)
(thousand tons)

|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |         | 
|------------------ | --------------------------------------- |  | --------------- | ------------------------ |  | ------- | ------- | ---- |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                   |                                         |  |                 |                          |  | 2002    |         | 2001 |  | 2000    |         | 1999 |  | 1998   
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |        
|Material mined
(b) |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  | Morenci         |                          |  | 248,505 |         |      |  | 281,474 |         |      |  | 274,871 |         |  |  | 297,872 |         |  |  | 288,200 |        
|                   |                                         |  | Bagdad          |                          |  | 42,912  |         |      |  | 63,680  |         |      |  | 69,101  |         |  |  | 16,233  |         |  |  |        |        
|                   |                                         |  | Sierrita        |                          |  | 23,066  |         |      |  | 60,869  |         |      |  | 75,319  |         |  |  | 15,875  |         |  |  |        |        
|                   |                                         |  | Miami           |                          |  |        |         |      |  | 32,702  |         |      |  | 46,446  |         |  |  | 13,787  |         |  |  |        |        
|                   |                                         |  | Chino           |                          |  | 220     |         |      |  | 59,277  |         |      |  | 61,519  |         |  |  | 44,562  |         |  |  | 117,432 |        
|                   |                                         |  | Cobre           |                          |  |        |         |      |  |        |         |      |  |        |         |  |  | 4,558   |         |  |  | 15,763  |        
|                   |                                         |  | Tyrone          |                          |  | 45,515  |         |      |  | 73,990  |         |      |  | 113,937 |         |  |  | 113,422 |         |  |  | 108,359 |        
|                   |                                         |  | Candelaria      |                          |  | 109,211 |         |      |  | 126,509 |         |      |  | 128,464 |         |  |  | 139,886 |         |  |  | 131,155 |        
|                   |                                         |  | Ojos del
Salado |                          |  |        |         |      |  |        |         |      |  |        |         |  |  |        |         |  |  | 1,336   |        
|                   |                                         |  | Cerro
Verde     |                          |  | 75,982  |         |      |  | 68,685  |         |      |  | 61,400  |         |  |  | 11,459  |         |  |  |        |        
|                   |                                         |  | El
Abra         |                          |  | 76,831  |         |      |  | 82,737  |         |      |  | 67,786  |         |  |  | 10,029  |         |  |  |        |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  |                 | Total material
mined     |  |         | 622,242 |      |  |         | 849,923 |      |  |         | 898,843 |  |  |         | 667,683 |  |  |         | 662,245 | 
|                   | Less minority
participants shares (c): |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  | 
|                   |                                         |  | Morenci         |                          |  | 37,276  |         |      |  | 42,220  |         |      |  | 41,231  |         |  |  | 44,681  |         |  |  | 43,230  |        
|                   |                                         |  | Chino           |                          |  | 73      |         |      |  | 19,758  |         |      |  | 20,506  |         |  |  | 14,854  |         |  |  | 39,144  |        
|                   |                                         |  | Candelaria      |                          |  | 21,842  |         |      |  | 25,302  |         |      |  | 25,693  |         |  |  | 27,977  |         |  |  | 26,231  |        
|                   |                                         |  | El
Abra         |                          |  | 37,647  |         |      |  | 40,541  |         |      |  | 33,215  |         |  |  | 4,914   |         |  |  |        |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |        
|                   |                                         |  |                 | Net Phelps Dodge
share   |  |         | 525,404 |      |  |         | 722,102 |      |  |         | 778,198 |  |  |         | 575,257 |  |  |         | 553,640 | 
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|Mill ore
processed |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  | Morenci         |                          |  |        |         |      |  | 4,301   |         |      |  | 26,698  |         |  |  | 38,283  |         |  |  | 47,108  |        
|                   |                                         |  | Bagdad          |                          |  | 19,783  |         |      |  | 31,667  |         |      |  | 29,846  |         |  |  | 6,211   |         |  |  |        |        
|                   |                                         |  | Sierrita        |                          |  | 21,439  |         |      |  | 38,133  |         |      |  | 38,319  |         |  |  | 8,046   |         |  |  |        |        
|                   |                                         |  | Chino           |                          |  |        |         |      |  | 3,109   |         |      |  | 13,889  |         |  |  | 16,056  |         |  |  | 16,431  |        
|                   |                                         |  | Cobre           |                          |  |        |         |      |  |        |         |      |  |        |         |  |  | 654     |         |  |  | 4,291   |        
|                   |                                         |  | Candelaria      |                          |  | 28,507  |         |      |  | 27,365  |         |      |  | 26,165  |         |  |  | 22,405  |         |  |  | 24,432  |        
|                   |                                         |  | Ojos del
Salado |                          |  |        |         |      |  |        |         |      |  |        |         |  |  |        |         |  |  | 1,210   |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  |                 | Total mill ore
processed |  |         | 69,729  |      |  |         | 104,575 |      |  |         | 134,917 |  |  |         | 91,655  |  |  |         | 93,472  | 
|                   | Less minority
participants shares (c): |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  | 
|                   |                                         |  | Morenci         |                          |  |        |         |      |  | 645     |         |      |  | 4,004   |         |  |  | 5,742   |         |  |  | 7,066   |        
|                   |                                         |  | Chino           |                          |  |        |         |      |  | 1,036   |         |      |  | 4,630   |         |  |  | 5,352   |         |  |  | 5,477   |        
|                   |                                         |  | Candelaria      |                          |  | 5,701   |         |      |  | 5,473   |         |      |  | 5,233   |         |  |  | 4,481   |         |  |  | 4,886   |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |        
|                   |                                         |  |                 | Net Phelps Dodge
share   |  |         | 64,028  |      |  |         | 97,421  |      |  |         | 121,050 |  |  |         | 76,080  |  |  |         | 76,043  | 
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 

See footnote explanations on page 13.





---



##### 



- 10 -

Phelps Dodge Copper Production Data, by Source (a)
(thousand tons)

|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |         | 
|----------------------------------- | --------------------------------------- | ---------------------- | ------------------------------------ | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                    |                                         | 2002                   |                                      | 2001 |         | 2000    |  | 1999 |         | 1998   
|                                    |                                         |                        |                                      |      |         |         |  |      |         |        
|Leach ore placed in
stockpiles      |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         | Morenci                |                                      |      | 241,955 |         |  |      | 258,202 |         |  |  | 236,696 |         |  |  | 250,680 |         |  |  | 232,120 |        
|                                    |                                         | Bagdad                 |                                      |      | 328     |         |  |      | 696     |         |  |  |        |         |  |  |        |         |  |  |        |        
|                                    |                                         | Sierrita               |                                      |      | 170     |         |  |      | 14,347  |         |  |  | 18,386  |         |  |  | 4,307   |         |  |  |        |        
|                                    |                                         | Miami                  |                                      |      |        |         |  |      | 10,208  |         |  |  | 11,032  |         |  |  | 2,379   |         |  |  |        |        
|                                    |                                         | Chino                  |                                      |      | 198     |         |  |      | 31,009  |         |  |  | 12,875  |         |  |  | 12,400  |         |  |  | 44,734  |        
|                                    |                                         | Tyrone                 |                                      |      | 34,835  |         |  |      | 27,513  |         |  |  | 51,446  |         |  |  | 55,693  |         |  |  | 55,086  |        
|                                    |                                         | Cerro
Verde            |                                      |      | 24,096  |         |  |      | 23,436  |         |  |  | 17,833  |         |  |  | 2,642   |         |  |  |        |        
|                                    |                                         | El
Abra                |                                      |      | 71,224  |         |  |      | 75,875  |         |  |  | 62,042  |         |  |  | 8,678   |         |  |  |        |        
|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         |                        | Total leach ore placed in
stockpiles |      |         | 372,806 |  |      |         | 441,286 |  |  |         | 410,310 |  |  |         | 336,779 |  |  |         | 331,940 | 
|                                    | Less minority
participants shares (c): |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  |  |        
|                                    |                                         | Morenci                |                                      |      | 36,293  |         |  |      | 38,729  |         |  |  | 35,503  |         |  |  | 37,602  |         |  |  | 34,817  |        
|                                    |                                         | Chino                  |                                      |      | 66      |         |  |      | 10,336  |         |  |  | 4,292   |         |  |  | 4,133   |         |  |  | 14,911  |        
|                                    |                                         | El
Abra                |                                      |      | 34,900  |         |  |      | 37,179  |         |  |  | 30,401  |         |  |  | 4,252   |         |  |  |        |        
|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         |                        | Net Phelps Dodge
share               |      |         | 301,547 |  |      |         | 355,042 |  |  |         | 340,114 |  |  |         | 290,792 |  |  |         | 282,212 | 
|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|Grade of ore mined
- percent copper |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         | Morenci -
mill         |                                      |      |        |         |  |      | 0.78    |         |  |  | 0.71    |         |  |  | 0.68    |         |  |  | 0.68    |        
|                                    |                                         | Morenci -
leach        |                                      |      | 0.28    |         |  |      | 0.30    |         |  |  | 0.26    |         |  |  | 0.26    |         |  |  | 0.26    |        
|                                    |                                         | Bagdad -
mill          |                                      |      | 0.43    |         |  |      | 0.43    |         |  |  | 0.43    |         |  |  | 0.43    |         |  |  |        |        
|                                    |                                         | Bagdad -
leach         |                                      |      | 0.29    |         |  |      | 0.28    |         |  |  |        |         |  |  |        |         |  |  |        |        
|                                    |                                         | Sierrita -
mill        |                                      |      | 0.32    |         |  |      | 0.29    |         |  |  | 0.29    |         |  |  | 0.29    |         |  |  |        |        
|                                    |                                         | Sierrita -
leach       |                                      |      | 0.21    |         |  |      | 0.22    |         |  |  | 0.20    |         |  |  | 0.20    |         |  |  |        |        
|                                    |                                         | Miami -
leach          |                                      |      |        |         |  |      | 0.41    |         |  |  | 0.71    |         |  |  | 0.52    |         |  |  |        |        
|                                    |                                         | Chino -
mill           |                                      |      |        |         |  |      | 0.79    |         |  |  | 0.83    |         |  |  | 0.59    |         |  |  | 0.68    |        
|                                    |                                         | Chino -
leach          |                                      |      | 0.29    |         |  |      | 0.48    |         |  |  | 0.22    |         |  |  | 0.25    |         |  |  | 0.18    |        
|                                    |                                         | Cobre -
mill           |                                      |      |        |         |  |      |        |         |  |  |        |         |  |  | 1.00    |         |  |  | 0.79    |        
|                                    |                                         | Tyrone -
leach         |                                      |      | 0.35    |         |  |      | 0.29    |         |  |  | 0.26    |         |  |  | 0.28    |         |  |  | 0.26    |        
|                                    |                                         | Candelaria -
mill      |                                      |      | 0.84    |         |  |      | 0.96    |         |  |  | 0.93    |         |  |  | 1.22    |         |  |  | 1.07    |        
|                                    |                                         | Ojos del Salado -
mill |                                      |      |        |         |  |      |        |         |  |  |        |         |  |  |        |         |  |  | 1.64    |        
|                                    |                                         | Cerro Verde -
leach    |                                      |      | 0.55    |         |  |      | 0.53    |         |  |  | 0.59    |         |  |  | 0.78    |         |  |  |        |        
|                                    |                                         | El Abra -
leach        |                                      |      | 0.50    |         |  |      | 0.60    |         |  |  | 0.56    |         |  |  | 0.79    |         |  |  |        |        
|                                    |                                         |                        | Average copper grade -
mill          |      |         | 0.56    |  |      |         | 0.54    |  |  |         | 0.59    |  |  |         | 0.75    |  |  |         | 0.80    | 
|                                    |                                         |                        | Average copper grade -
leach         |      |         | 0.35    |  |      |         | 0.38    |  |  |         | 0.33    |  |  |         | 0.28    |  |  |         | 0.25    | 

See footnote explanations on page 13.





---



##### 



- 11 -

Phelps Dodge Copper Production and Sales Data, by Source (a)
(thousand tons)

|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |   |       |         | 
|--------------------------------------------------------- | --------------------------------------- | ---- | --------------------------- | ---------------------------------------------------------- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | ----- | ------- | ----- | - | ----- | ------- | 
|                                                          |                                         | 2002 |                             | 2001                                                       |  | 2000  |         | 1999  |  | 1998 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |      
|Copper
Production                                         |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Morenci:                                |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  |      |         |       |  | 23.5  |         |       |  | 132.3 |         |       |  | 195.2 |         |       |   | 247.2 |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 412.7 |         |       |  | 368.1 |         |       |  | 284.7 |         |       |  | 284.7 |         |       |   | 275.8 |        
|                                                          | Bagdad:                                 |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  | 68.4  |         |       |  | 118.1 |         |       |  | 111.5 |         |       |  | 22.3  |         |       |   |      |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 15.6  |         |       |  | 10.5  |         |       |  | 11.8  |         |       |  | 2.9   |         |       |   |      |        
|                                                          | Sierrita:                               |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  | 60.0  |         |       |  | 94.6  |         |       |  | 95.9  |         |       |  | 19.7  |         |       |   |      |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 16.2  |         |       |  | 26.3  |         |       |  | 26.5  |         |       |  | 5.8   |         |       |   |      |        
|                                                          | Miami:                                  |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 10.5  |         |       |  | 44.1  |         |       |  | 59.3  |         |       |  | 13.2  |         |       |   |      |        
|                                                          | Bisbee:                                 |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Precipitate                 |                                                            |  | 0.1   |         |       |  | 0.2   |         |       |  | 0.1   |         |       |  | 0.1   |         |       |   | 0.6   |        
|                                                          | Chino:                                  |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate and
precipitate |                                                            |  |      |         |       |  | 18.3  |         |       |  | 87.0  |         |       |  | 74.3  |         |       |   | 85.5  |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 53.8  |         |       |  | 59.9  |         |       |  | 48.6  |         |       |  | 55.8  |         |       |   | 72.4  |        
|                                                          | Cobre:                                  |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  |      |         |       |  |      |         |       |  |      |         |       |  | 6.6   |         |       |   | 34.2  |        
|                                                          | Tyrone:                                 |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 69.9  |         |       |  | 76.4  |         |       |  | 79.3  |         |       |  | 80.1  |         |       |   | 82.6  |        
|                                                          | Candelaria:                             |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  | 219.5 |         |       |  | 243.2 |         |       |  | 224.7 |         |       |  | 250.1 |         |       |   | 236.9 |        
|                                                          | Ojos del
Salado:                        |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  |      |         |       |  |      |         |       |  |      |         |       |  |      |         |       |   | 17.9  |        
|                                                          | Cerro
Verde:                            |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 95.3  |         |       |  | 84.9  |         |       |  | 78.7  |         |       |  | 16.2  |         |       |   |      |        
|                                                          | El
Abra:                                |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 248.2 |         |       |  | 239.8 |         |       |  | 217.4 |         |       |  | 52.8  |         |       |   |      |        
|                                                          | Manufacturing and Sales
(d)             |      |                             | 5.4                                                        |  |       |         | 3.0   |  |       |         | 1.2   |  |       |         | 1.5   |  |       |         | (0.4  | )
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      |                             | Total copper
production                                    |  |       | 1,275.6 |       |  |       | 1,410.9 |       |  |       | 1,459.0 |       |  |       | 1,081.3 |       |   |       | 1,052.7 | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Less minority
participants shares (c): |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Morenci                     |                                                            |  | 61.9  |         |       |  | 58.8  |         |       |  | 62.5  |         |       |  | 72.0  |         |       |   | 78.4  |        
|                                                          |                                         |      | Chino                       |                                                            |  | 17.9  |         |       |  | 26.1  |         |       |  | 45.2  |         |       |  | 43.3  |         |       |   | 52.6  |        
|                                                          |                                         |      | Candelaria                  |                                                            |  | 43.9  |         |       |  | 48.6  |         |       |  | 45.0  |         |       |  | 50.0  |         |       |   | 47.4  |        
|                                                          |                                         |      | El
Abra                     |                                                            |  | 121.7 |         |       |  | 117.5 |         |       |  | 106.5 |         |       |  | 25.9  |         |       |   |      |        
|                                                          |                                         |      | Manufacturing and Sales
(d) |                                                            |  | 1.4   |         |       |  | (0.2  | )       |       |  | (0.5  | )       |       |  |      |         |       |   | 0.3   |        
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |   |       |        
|                                                          |                                         |      |                             | Net Phelps Dodge
share                                     |  |       | 1,028.8 |       |  |       | 1,160.1 |       |  |       | 1,200.3 |       |  |       | 890.1   |       |   |       | 874.0   | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|Copper sales -
net Phelps Dodge share from own mines (e): |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Morenci                                 |      |                             | 350.8                                                      |  |       |         | 333.0 |  |       |         | 354.4 |  |       |         | 415.5 |  |       |         | 445.8 |  
|                                                          | Bagdad                                  |      |                             | 92.3                                                       |  |       |         | 132.9 |  |       |         | 123.3 |  |       |         | 25.2  |  |       |         |      |  
|                                                          | Sierrita                                |      |                             | 83.8                                                       |  |       |         | 125.1 |  |       |         | 122.4 |  |       |         | 25.6  |  |       |         |      |  
|                                                          | Miami                                   |      |                             | 15.2                                                       |  |       |         | 46.6  |  |       |         | 59.2  |  |       |         | 13.2  |  |       |         |      |  
|                                                          | Bisbee                                  |      |                             | 0.1                                                        |  |       |         | 0.3   |  |       |         | 0.1   |  |       |         | 0.1   |  |       |         | 0.6   |  
|                                                          | Chino                                   |      |                             | 35.8                                                       |  |       |         | 52.1  |  |       |         | 90.4  |  |       |         | 89.3  |  |       |         | 105.6 |  
|                                                          | Cobre                                   |      |                             |                                                           |  |       |         |      |  |       |         |      |  |       |         | 6.6   |  |       |         | 33.8  |  
|                                                          | Tyrone                                  |      |                             | 69.9                                                       |  |       |         | 76.4  |  |       |         | 79.2  |  |       |         | 81.7  |  |       |         | 82.8  |  
|                                                          | Candelaria                              |      |                             | 174.6                                                      |  |       |         | 190.1 |  |       |         | 181.5 |  |       |         | 187.4 |  |       |         | 190.2 |  
|                                                          | Cerro
Verde                             |      |                             | 94.9                                                       |  |       |         | 84.7  |  |       |         | 78.8  |  |       |         | 16.5  |  |       |         |      |  
|                                                          | El
Abra                                 |      |                             | 129.6                                                      |  |       |         | 126.7 |  |       |         | 109.5 |  |       |         | 29.3  |  |       |         |      |  
|                                                          | Ojos del
Salado                         |      |                             |                                                           |  |       |         |      |  |       |         |      |  |       |         |      |  |       |         | 18.2  |  
|                                                          | Manufacturing and Sales
(d)             |      |                             | 4.1                                                        |  |       |         | 2.9   |  |       |         | 1.8   |  |       |         | 1.5   |  |       |         | (0.7  | )
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      |                             | Total copper sales - net Phelps
Dodge share
from own mines |  |       | 1,051.1 |       |  |       | 1,170.8 |       |  |       | 1,200.6 |       |  |       | 891.9   |       |   |       | 876.3   | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|Purchased
copper:                                         |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Morenci                                 |      |                             |                                                           |  |       |         |      |  |       |         |      |  |       |         | 0.1   |  |       |         | 0.1   |  
|                                                          | Candelaria                              |      |                             | 35.8                                                       |  |       |         | 37.0  |  |       |         | 5.0   |  |       |         |      |  |       |         | 3.7   |  
|                                                          | El
Abra                                 |      |                             | 56.5                                                       |  |       |         | 5.8   |  |       |         |      |  |       |         |      |  |       |         |      |  
|                                                          | Manufacturing and Sales
(d)             |      |                             | 350.7                                                      |  |       |         | 418.4 |  |       |         | 490.0 |  |       |         | 289.6 |  |       |         | 305.5 |  
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      | Total purchased
copper      |                                                            |  | 443.0 |         |       |  | 461.2 |         |       |  | 495.0 |         |       |  | 289.7 |         |       |   | 309.3 |        
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      |                             | Total sales                                                |  |       | 1,494.1 |       |  |       | 1,632.0 |       |  |       | 1,695.6 |       |  |       | 1,181.6 |       |   |       | 1,185.6 | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |   |       |        

See footnote explanations on page 13.





---



##### 



- 12 -

Phelps Dodge Other Metal Production and Sales (a)

|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |         |         | 
|----------------------------- | ------------------------------------------------- | ------------------------------------------------------------- |  | ------ | ------ | ---- |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------ |  |  | ------- | ------- | 
|                              |                                                   |                                                               |  | 2002   |        | 2001 |  | 2000    |         | 1999 |  | 1998   
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |        
|Gold (thousand
ounces)        |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Total
production                                  |                                                               |  | 132    |        |      |  | 140     |         |      |  | 151     |         |  |  | 173     |        |  |  | 185     |        
|                              | Less minority
participants shares (c)            |                                                               |  | 24     |        |      |  | 31      |         |      |  | 33      |         |  |  | 37      |        |  |  | 36      |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 108    |      |  |         | 109     |      |  |         | 118     |  |  |         | 136    |  |  |         | 149     | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales
(e)                                         |                                                               |  | 136    |        |      |  | 77      |         |      |  | 120     |         |  |  | 138     |        |  |  | 159     |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|Silver (thousand
ounces)      |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Total
production                                  |                                                               |  | 2,582  |        |      |  | 3,773   |         |      |  | 4,985   |         |  |  | 4,284   |        |  |  | 3,566   |        
|                              | Less minority
participants shares (c)            |                                                               |  | 225    |        |      |  | 490     |         |      |  | 657     |         |  |  | 877     |        |  |  | 713     |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 2,357  |      |  |         | 3,283   |      |  |         | 4,328   |  |  |         | 3,407  |  |  |         | 2,853   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales
(e)                                         |                                                               |  | 3,317  |        |      |  | 2,504   |         |      |  | 4,813   |         |  |  | 3,415   |        |  |  | 3,251   |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|Molybdenum
(thousand pounds)  |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Primary
Molybdenum:                               |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |         |        
|                              |                                                   | Henderson                                                     |  |        | 20,517 |      |  |         | 18,603  |      |  |         | 19,727  |  |  |         | 1,718  |  |  |         |        | 
|                              |                                                   | By-product                                                    |  |        | 24,448 |      |  |         | 36,912  |      |  |         | 31,751  |  |  |         | 6,585  |  |  |         | 1,369   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Total
production                                              |  |        | 44,965 |      |  |         | 55,515  |      |  |         | 51,478  |  |  |         | 8,303  |  |  |         | 1,369   | 
|                              | Less minority
participants shares (c):           |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |         |        
|                              |                                                   | Chino                                                         |  |        |       |      |  |         | 50      |      |  |         | 419     |  |  |         | 241    |  |  |         | 355     | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 44,965 |      |  |         | 55,465  |      |  |         | 51,059  |  |  |         | 8,062  |  |  |         | 1,014   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales - Net Phelps
Dodge share from own mines (e) |                                                               |  | 46,665 |        |      |  | 55,105  |         |      |  | 57,988  |         |  |  | 11,391  |        |  |  | 1,050   |        
|                              | Purchased
molybdenum                              |                                                               |  | 7,393  |        |      |  | 1,609   |         |      |  |        |         |  |  | 26      |        |  |  |        |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Total sales                                                   |  |        | 54,058 |      |  |         | 56,714  |      |  |         | 57,988  |  |  |         | 11,417 |  |  |         | 1,050   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|Sulfuric acid
(thousand tons) |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Total production from
copper smelters (f)         |                                                               |  | 748.6  |        |      |  | 1,236.7 |         |      |  | 1,231.8 |         |  |  | 1,172.1 |        |  |  | 1,222.1 |        
|                              | Less minority
participants shares (c)            |                                                               |  | 1.6    |        |      |  | 190.2   |         |      |  | 186.3   |         |  |  | 212.5   |        |  |  | 200.9   |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 747.0  |      |  |         | 1,046.5 |      |  |         | 1,045.5 |  |  |         | 959.6  |  |  |         | 1,021.2 | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales from copper
smelters                        |                                                               |  | 14.5   |        |      |  | 15.9    |         |      |  | 35.0    |         |  |  | 625.5   |        |  |  | 196.1   |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | COMEX copper price per pound
(g)                              |  | $      | 0.72   |      |  |         | 0.73    |      |  |         | 0.84    |  |  |         | 0.72   |  |  |         | 0.75    | 
|                              |                                                   | LME copper price per pound
(h)                                |  | $      | 0.71   |      |  |         | 0.72    |      |  |         | 0.82    |  |  |         | 0.71   |  |  |         | 0.75    | 
|                              |                                                   | Metals Week-
molybdenum dealer oxide mean
price per pound (i) |  | $      | 3.77   |      |  |         | 2.36    |      |  |         | 2.56    |  |  |         | 2.65   |  |  |         | 3.41    | 

See footnote explanations on page 13.





---



##### 



- 13 -

Phelps Dodge Manufacturing and Sales Production (a)

|               |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |         |       | 
|-------------- | -------------------------------------- | ---------------------- |  | ------- | ----- | ---- |  | ------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ----- |  |  | ------- | ----- | 
|               |                                        |                        |  | 2002    |       | 2001 |  | 2000    |       | 1999 |  | 1998   
|               |                                        |                        |  |         |       |      |  |         |       |      |  |        
|Smelters
(j)   |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               | Total copper (thousand
tons)           |                        |  | 243.8   |       |      |  | 463.5   |       |      |  | 439.8   |       |  |  | 267.4   |       |  |  | 405.8   |      
|               | Less minority
participants shares (c) |                        |  | 0.5     |       |      |  | 36.7    |       |      |  | 49.5    |       |  |  | 57.0    |       |  |  | 60.1    |      
|               |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               |                                        | Net Phelps Dodge
share |  |         | 243.3 |      |  |         | 426.8 |      |  |         | 390.3 |  |  |         | 210.4 |  |  |         | 345.7 | 
|               |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|Refineries
(k) |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               | Copper (thousand
tons)                 |                        |  | 319.6   |       |      |  | 502.6   |       |      |  | 471.2   |       |  |  | 422.6   |       |  |  | 429.3   |      
|               | Gold (thousand
ounces)                 |                        |  | 79.0    |       |      |  | 86.6    |       |      |  | 52.6    |       |  |  | 72.9    |       |  |  | 74.6    |      
|               | Silver (thousand
ounces)               |                        |  | 1,786.0 |       |      |  | 3,719.1 |       |      |  | 3,838.9 |       |  |  | 3,681.5 |       |  |  | 2,523.8 |      
|Rod
(l)        |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               | Total copper (thousand
tons)           |                        |  | 850.6   |       |      |  | 879.8   |       |      |  | 1,153.9 |       |  |  | 805.1   |       |  |  | 764.4   |      



---

Footnotes to tables on pages 9 through 13:

|(a) |  | Includes Cyprus Amax production and sales from the time it was acquired
on October 16, 1999.                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes material mined for leaching operations.                                                                                                                                                                                               
|   
|(c) |  | Interests in mining joint ventures in which we own more than
50 percent are reported using the
proportional consolidation method. Cerro Verde, in which we own 82 percent of its common stock,
is reported using the full consolidation method.
|   
|(d) |  | Includes smelter production from custom receipts and fluxes as well as
tolling gains or losses.                                                                                                                                                
|   
|(e) |  | Excludes sales of purchased copper, molybdenum, silver and
gold.                                                                                                                                                                               
|   
|(f) |  | Sulfuric acid production results from smelter air quality control operations;
sales do not include internal
usage.                                                                                                                             
|   
|(g) |  | New York Commodity Exchange annual average spot price per pound
 cathodes.                                                                                                                                                                    
|   
|(h) |  | London Metal Exchange annual average spot price per pound 
cathodes.                                                                                                                                                                          
|   
|(i) |  | Annual molybdenum dealer oxide average mean price per pound 
as quoted in Platts Metals Week.                                                                                                                                                 
|   
|(j) |  | Includes production from purchased concentrates and copper smelted for
others on a toll basis.                                                                                                                                                 
|   
|(k) |  | Includes production from purchased material and copper refined for
others on a toll basis.                                                                                                                                                     
|   
|(l) |  | Includes rod, wire, oxygen-free billets/cakes, scrap and other
shapes.                                                                                                                                                                         





---



##### 



- 14-

Other Mining Segment

This segment includes our worldwide
mineral exploration and development
programs, a process technology center that directs its activities at improving
existing processes and developing new cost-competitive technologies, and other
ancillary operations.

Exploration

Our exploration groups primary
objectives are to increase PDMCs reserve
base through discoveries and joint ventures and, where appropriate, to
diversify into other metals, minerals and geographic areas. Exploration is
focused on finding large-scale copper, and copper and gold deposits in the four
principal copper-producing regions of the world: southwest USA/Mexico, South
American Cordillera, Central Africa, and Australia, as well as in other highly
prospective areas. This group operates in over 12 countries and maintains
offices in Australia, Brazil, Canada, Chile, India, Indonesia, Mexico, Peru,
the Philippines and the United States.

In 2002, Phelps Dodge expended
$20.0 million on worldwide exploration,
compared with $36.8 million in 2001 and $39.7 million in 2000. Approximately
33 percent of the 2002 expenditures occurred in the United States with 24
percent being spent at our U.S. mines. This compares with 14 percent in 2001
(13 percent at U.S. mine sites) and 23 percent in 2000 (17 percent at U.S. mine
sites). The balance of our exploration expenditures was spent principally in
Australasia, Brazil, Chile, Mexico, Canada, Peru and Central Africa, including
7 percent at our South American mine sites.

During 2002, exploration efforts continued at
our existing copper
operations. Work commenced on an underground decline at Candelaria to provide
exploration drilling access in 2003 to a high-grade underground zone of
mineralization at depth adjacent to the Candelaria open pit. Drilling programs
at Tyrone continued to further define two oxide copper deposits situated very
near the surface. At our Morenci mine, the first phase drilling of five
district targets intersected promising mineralized intercepts.

Environmental permitting continues at our
Safford project in eastern
Arizona to enable development of the Dos Pobres and San Juan deposits. The two
deposits contain an estimated total of 533 million tons of leachable reserves
with an ore grade of 0.37 percent copper.

In August 2002, Phelps Dodge announced it
had replaced BHP Billiton as
option holder under an existing agreement among BHP Billiton, Tenke Mining
Corp. and others to acquire a controlling interest and operatorship in the
Tenke Fungurume copper/cobalt project in the Democratic Republic of the Congo.

In December 2001, we recorded a charge
of $3.9 million to write-off the
net book value of the Piedras Verdes project in Sonora, Mexico, as it no longer
met our development criteria. In March 2002, Phelps Dodge reached an agreement
with Frontera Copper Corporation to sell its interest in the Piedras Verdes
project in Mexico. The agreement gave Phelps Dodge $0.5 million in cash plus
other consideration, which are subject to a number of conditions, not to exceed
$16 million.

In October 2001, Phelps Dodge sold its
50 percent interest in Mineração
Serra do Sossego to Companhia Vale do Rio Doce (CVRD) for $42.5 million in
cash. Sossego is a copper-gold deposit in the Carajas region of Brazil.

Work on our Ambatovy nickel/cobalt deposit
in central Madagascar remains
on hold pending resolution of certain regulatory and permitting issues, and
evaluation of strategic options. A feasibility study previously estimated
mineralized material of 210 million tons at an estimated grade of 1.1 percent
nickel and 0.1 percent cobalt.

Process Technology

The objectives of PDMCs process
technology center (PTC) in Safford,
Arizona, are to enhance and strengthen Phelps Dodges competitive position in
the world copper market. PTC was established in 1996 to provide metallurgical
process development capabilities, process optimization services, metallurgical
testing and advanced material characterization services to meet the needs of
PDMC and its operations. PTC is ISO-9001 certified. The activities at PTC are
directed at continuous improvement of existing processes and the development of
new cost-competitive technologies, and are an integral part of our Quest for
Zeroprogram. PTC employs approximately 72 engineers, scientists and technical
support staff. The facilities include:



| |  | 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 1.5 tons of cathode
copper per day;                                                            
| 
| |  | a small-diameter column leach facility with a capacity of 250 individual
tests per year for crushed material;                                        
| 
| |  | a metallurgical laboratory for the development of biological leaching
processes and enhancements and other biological applications; and              





---



##### 



-15-



| |  | a state-of-the-art material characterization laboratory with advanced
mineralogy, analytical chemistry and metallography capabilities.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------

The principal areas of activity include
hydrometallurgy, mineral
processing (grinding and flotation), material characterization and technical
information services. Some of the most important projects and milestones in
2002 were:



| |  | The design and construction of a new concentrate pressure leaching
demonstration plant at the Bagdad mine. The facility is
the first of its kind in the world to use high-temperature pressure leaching to process chalcopyrite concentrates.
The
technology is proprietary and is covered under a Technology Development Agreement between Phelps Dodge
and Placer Dome Inc.
The plant is being constructed at a cost of approximately $40 million and is designed to produce
35 million pounds of
copper cathode from concentrate annually. Copper recovery is expected to be 98 percent compared with
96 to 97 percent by
conventional smelting and refining. The plant will be used to prove this new technology, and related technology,
for
possible application at other PDMC properties in the future. The plant is scheduled to start production in the
second
quarter of 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The successful completion of continuous pilot plant testing of a new
medium-temperature pressure leaching process for
copper concentrate treatment at the Hazen Research facility in Golden, Colorado. This process is designed to
minimize acid
production and has potential application for the processing of concentrates where sulfuric acid cannot be
beneficially used
in stockpile or heap leaching operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | The development of a direct electrowinning technology for use in
conjunction with the pressure leaching technology
described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | The continued advancement of proprietary technology for heap and
stockpile leaching of low-grade chalcopyrite ores.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | The investigation of alternative technologies to reduce the cost of copper
electrowinning.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
| |  | The investigation of alternative sulfuric acid production
techniques.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | The successful installation and commissioning of a second QemSCAN
scanning electron microscope in the second quarter of
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Total expenditures for PTC in 2002 were
approximately $13 million,
compared with $11 million in 2001 and $9 million in 2000. PDMC intends to
advance all of these research and development projects aggressively in 2003.

Other

Additionally, this segment includes our
Tohono copper operation in south
central Arizona, which includes an SX/EW facility capable of producing copper
cathode. The facility is located on lands leased from the Tohono Oodham
Nation. Although mining of ore ceased in July 1997, production of copper
continued from existing leach stockpiles until February 1999 when the facility
was placed on care-and-maintenance status. The property has mineralized
material for which, at higher copper prices, various alternatives could be
considered.

Other Mining Investments

We own a 14.0 percent interest in
Southern Peru Copper Corporation (SPCC),
which operates two open-pit copper mines, two concentrators, an SX/EW
operation, a smelter and a refinery in Peru. SPCCs other principal
shareholders are a subsidiary of Grupo Mexico, S.A. de C.V., with a 54.2
percent interest, and Cerro Trading Company, Inc., with a 14.2 percent
interest. A total of 17.6 percent interest is publicly held. SPCCs results
are not included in our earnings because we account for our investment in SPCC
on the cost basis. Based on the composition of SPCCs Board of Directors,
Grupo Mexico has majority control and the two principal minority shareholders
cannot override Grupo Mexicos decisions. During 2002, we received dividend
payments of $4.0 million from SPCC, compared with $4.0 million in 2001 and $3.8
million in 2000.

In May 1997, we acquired an indirect
40 percent voting interest,
representing a 26.67 percent economic interest, in a Peruvian zinc mining
company, Compañía San Ignacio de Morococha S.A. (SIMSA) and its San Vicente
mine. SIMSAs other shareholder with voting shares was the Jesus Arias family.
We accounted for our investment in SIMSA on the equity basis. During the
fourth quarter of 2001, the investment was written down by $9.1 million due to
the impact of low zinc prices on the operations ability to generate cash flows
to cover operational and debt costs and our belief that we could not recover
our investment. In November 2002, we sold our interest in SIMSA to the Arias
family for $0.2 million.

In March 2000, we sold Cyprus Australia
Coal Company, a wholly owned
subsidiary that we acquired as part of the Cyprus transaction, to a subsidiary
of Glencore International for $150 million in cash.





---



##### 



- 16 -

Ore Reserves

Ore reserves are those estimated quantities
of proven and probable material that may be economically mined
and processed for extraction of their constituent values. Estimates of our ore reserves are based upon
engineering evaluations of assay values derived from sampling of drill holes and other openings. In our opinion,
the sites for such samplings are spaced sufficiently close and the geologic characteristics of the deposits are
sufficiently well defined to render the estimates reliable. The ore reserve estimates include assessments of the
resource, mine, and metallurgical models as well as consideration of economic, marketing, legal, environmental,
social and governmental factors.

Phelps Dodge uses several additional
factors to determine mine design limits that it believes maximize the value
of future cash flows including time-valued concepts to recognize, for example, any elapsed time between mining
of overburden and the mining of ore. Our mine designs recognize capital and other expenditures required
to extract the ore reserves over the life of the mine. Cutoff grade strategies are implemented to maximize
time-valued cash flows. Phelps Dodge believes that its ore reserve calculation methodology is prudent and
consistent with appropriate industry standards.

Proven and probable ore reserves at
December 31, 2002, and 2001 for each of our operating, curtailed and
development properties are summarized as follows:

|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------- | ------------- |  | ----------------- | ---- | ------- |  | ------ | ---- | ------- |  | ------------------ | ----- | -------- |  |  | ---- |  |  |  | ------- |  |  |  | ---- |  |  |  | ----- | 
|                                                                                        |  | Total Reserves Estimated at December 31,
2002 (1)
|                                                                                        |  |                                                  
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  | Leachable Reserves |       |         
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|                                                                                        |  | Millable Reserves                                 |         | Crushed Leach |  | Run-of-Mine (ROM) |      | Phelps 
|                                                                                        |  |                                                   |         |               |  |                   |      | Dodge  
|                                                                                        |  | Million                                           |         | %             |  | %                 |      | Million |  | %      |      | Million |  | %                  |       | Interest
|                                                                                        |  | Tons                                              |         | Copper        |  | Moly              |      | Tons    |  | Copper |      | Tons    |  | Copper             |       | (%)     
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|Operating and Curtailed
Operations                                                      |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Morenci (2)                                                                             |  |                                                   | 181.5   |               |  |                   | 0.47 |         |  |        |     |         |  |                    | 587.7 |          |  |  | 0.57 |  |  |  | 2,303.0 |  |  |  | 0.19 |  |  |  | 85.0  | 
|Bagdad                                                                                  |  |                                                   | 873.6   |               |  |                   | 0.36 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  | 17.2    |  |  |  | 0.29 |  |  |  | 100.0 | 
|Sierrita                                                                                |  |                                                   | 1,040.9 |               |  |                   | 0.27 |         |  |        | 0.03 |         |  |                    |      |          |  |  |     |  |  |  | 26.7    |  |  |  | 0.19 |  |  |  | 100.0 | 
|Miami (3)                                                                               |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 126.9   |  |  |  | 0.37 |  |  |  | 100.0 | 
|Chino (3) (4)                                                                           |  |                                                   | 187.0   |               |  |                   | 0.62 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  | 263.8   |  |  |  | 0.42 |  |  |  | 66.7  | 
|Cobre (3) (4)                                                                           |  |                                                   | 57.6    |               |  |                   | 0.55 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 77.8    |  |  |  | 0.26 |  |  |  | 100.0 | 
|Tyrone (4)                                                                              |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 224.5   |  |  |  | 0.32 |  |  |  | 100.0 | 
|Candelaria (5)                                                                          |  |                                                   | 387.0   |               |  |                   | 0.70 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 80.0  | 
|Ojos del Salado (3)
(5)                                                                 |  |                                                   | 18.7    |               |  |                   | 1.32 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Cerro Verde                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 198.8 |          |  |  | 0.66 |  |  |  | 133.5   |  |  |  | 0.30 |  |  |  | 82.0  | 
|El Abra                                                                                 |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 309.3 |          |  |  | 0.54 |  |  |  | 281.2   |  |  |  | 0.27 |  |  |  | 51.0  | 
|Primary
Molybdenum:                                                                     |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Climax (3)                                                                              |  |                                                   | 145.2   |               |  |                   |     |         |  |        | 0.23 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Henderson                                                                               |  |                                                   | 170.7   |               |  |                   |     |         |  |        | 0.21 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Undeveloped Reserves -
require substantial capital
investments to bring into production |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Cerro Verde                                                                             |  |                                                   | 464.0   |               |  |                   | 0.61 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 82.0  | 
|Other Mining:                                                                           |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Ajo (6)                                                                                 |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Safford (7)                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 447.2 |          |  |  | 0.40 |  |  |  | 86.1    |  |  |  | 0.20 |  |  |  | 100.0 | 



---

|(1) |  | Total reserves estimated (i) are 100% basis, (ii) include only
in-situ tonnages, and (iii) do not include stockpiled ores.                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Morenci ore reserves increased from 2001 primarily as a result of
additional drilling, completion of the resource model and development of an economic mine
plan for the Fairbanks area.                           
|   
|(3) |  | Chino, Cobre, Climax, Miami and Ojos del Salado properties are on
care-and-maintenance status with no mining taking place.                                                                                         
|   
|(4) |  | Chino, Cobre and Tyrone reserves were reduced from 2001 primarily as a
result of new mine plans and new economic parameters.                                                                                       
|   
|(5) |  | The Candelaria and Ojos del Salado deposits also contain, respectively,
0.006 ounces and 0.008 ounces of gold per ton. Candelaria reserves increased from
2001 primarily due to additional drilling and remodeling.
|   
|(6) |  | Material previously characterized as ore reserves at the Ajo development
property were reclassified as mineralized material in 2002 as a result of an updated mine
plan and economic assessment.                   
|   
|(7) |  | The Safford property is in the permitting process. Safford ore reserves
were reduced from 2001 due to a new mine plan and new economic parameters.                                                                 





---



##### 



-17-

|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------- | ------------- |  | ----------------- | ---- | ------- |  | ------ | ---- | ------- |  | ------------------ | ----- | -------- |  |  | ---- |  |  |  | ------- |  |  |  | ---- |  |  |  | ----- | 
|                                                                                        |  | Total Reserves Estimated at December 31,
2001 (1)
|                                                                                        |  |                                                  
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  | Leachable Reserves |       |         
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|                                                                                        |  | Millable Reserves                                 |         | Crushed Leach |  | Run-of-Mine (ROM) |      | Phelps 
|                                                                                        |  |                                                   |         |               |  |                   |      | Dodge  
|                                                                                        |  | Million                                           |         | %             |  | %                 |      | Million |  | %      |      | Million |  | %                  |       | Interest
|                                                                                        |  | Tons                                              |         | Copper        |  | Moly              |      | Tons    |  | Copper |      | Tons    |  | Copper             |       | (%)     
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|Operating and Curtailed
Operations                                                      |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Morenci                                                                                 |  |                                                   | 128.7   |               |  |                   | 0.41 |         |  |        |     |         |  |                    | 468.8 |          |  |  | 0.60 |  |  |  | 2,853.0 |  |  |  | 0.22 |  |  |  | 85.0  | 
|Bagdad                                                                                  |  |                                                   | 884.9   |               |  |                   | 0.36 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  | 17.7    |  |  |  | 0.29 |  |  |  | 100.0 | 
|Sierrita                                                                                |  |                                                   | 1,052.1 |               |  |                   | 0.27 |         |  |        | 0.03 |         |  |                    |      |          |  |  |     |  |  |  | 62.5    |  |  |  | 0.19 |  |  |  | 100.0 | 
|Miami                                                                                   |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 117.6   |  |  |  | 0.38 |  |  |  | 100.0 | 
|Chino                                                                                   |  |                                                   | 303.6   |               |  |                   | 0.59 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 448.8   |  |  |  | 0.30 |  |  |  | 66.7  | 
|Cobre                                                                                   |  |                                                   | 132.4   |               |  |                   | 0.73 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Tyrone                                                                                  |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 434.3   |  |  |  | 0.29 |  |  |  | 100.0 | 
|Candelaria                                                                              |  |                                                   | 375.7   |               |  |                   | 0.83 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 80.0  | 
|Ojos del
Salado                                                                         |  |                                                   | 18.7    |               |  |                   | 1.32 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Cerro Verde                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 207.2 |          |  |  | 0.66 |  |  |  | 123.3   |  |  |  | 0.28 |  |  |  | 82.0  | 
|El Abra                                                                                 |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 353.0 |          |  |  | 0.55 |  |  |  | 383.8   |  |  |  | 0.30 |  |  |  | 51.0  | 
|Primary
Molybdenum:                                                                     |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Climax                                                                                  |  |                                                   | 145.2   |               |  |                   |     |         |  |        | 0.23 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Henderson                                                                               |  |                                                   | 175.9   |               |  |                   |     |         |  |        | 0.21 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Undeveloped Reserves -
require substantial capital
investments to bring into production |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Cobre                                                                                   |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 98.0    |  |  |  | 0.35 |  |  |  | 100.0 | 
|Cerro Verde                                                                             |  |                                                   | 464.0   |               |  |                   | 0.61 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 82.0  | 
|Other Mining:                                                                           |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Ajo (2)                                                                                 |  |                                                   | 150.0   |               |  |                   | 0.56 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Safford
(2)                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 474.7 |          |  |  | 0.39 |  |  |  | 151.6   |  |  |  | 0.16 |  |  |  | 100.0 | 



|(1) |  | Total reserves estimated (i) are 100% basis, (ii) include only
in-situ tonnages, and (iii) do not include stockpiled ores.                                                                                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Ajo and Safford properties were at various stages in the permitting
process. The current mine plan for Safford is based on an open-pit leach operation. Prior
to 2001, material previously characterized as underground ore reserves at Safford has, therefore, been
reclassified as mineralized material.





---



##### 



- 18 -

Average Drill-Hole Spacing at Ore Reserve Properties

The following table sets forth the average
drill-hole spacing for proven
and probable ore reserves by process types:

|                |  |                         |     |                        |  |      |     |       |  |  |     |  |  |  |     | 
|--------------- |  | ----------------------- | --- | ---------------------- |  | ---- | --- | ----- |  |  | --- |  |  |  | --- | 
|                |  | As of December 31, 2002
|                |  |                        
|                |  | Proven                  |     | Probable              
|                |  | (average spacing feet)  |     | (average spacing feet)
|                |  |                         |     |                       
|Property        |  | Mill                    |     | Leach                  |  | Mill |     | Leach
|                |  |                         |     |                        |  |      |     |      
|Morenci         |  |                         | 283 |                        |  |      | 283 |       |  |  | 400 |  |  |  | 400 | 
|Bagdad          |  |                         | 190 |                        |  |      | 81  |       |  |  | 441 |  |  |  | 323 | 
|Sierrita        |  |                         | 224 |                        |  |      | 141 |       |  |  | 339 |  |  |  | 243 | 
|Miami           |  |                         | N/A |                        |  |      | 200 |       |  |  | N/A |  |  |  | 300 | 
|Chino           |  |                         | 141 |                        |  |      | 200 |       |  |  | 200 |  |  |  | 283 | 
|Cobre           |  |                         | 150 |                        |  |      | 200 |       |  |  | 200 |  |  |  | 300 | 
|Tyrone          |  |                         | N/A |                        |  |      | 283 |       |  |  | N/A |  |  |  | 283 | 
|Candelaria      |  |                         | 115 |                        |  |      | N/A |       |  |  | 230 |  |  |  | N/A | 
|Ojos del
Salado |  |                         | 82  |                        |  |      | N/A |       |  |  | 164 |  |  |  | N/A | 
|Cerro Verde     |  |                         | 196 |                        |  |      | 121 |       |  |  | 444 |  |  |  | 303 | 
|El Abra         |  |                         | N/A |                        |  |      | 197 |       |  |  | N/A |  |  |  | 328 | 
|Climax          |  |                         | 200 |                        |  |      | N/A |       |  |  | 200 |  |  |  | N/A | 
|Henderson       |  |                         | 65  |                        |  |      | N/A |       |  |  | 290 |  |  |  | N/A | 
|Safford         |  |                         | N/A |                        |  |      | 200 |       |  |  | N/A |  |  |  | 400 | 

Metallurgical Recovery

The following table sets forth the average
expected metallurgical recovery by process type:

|                |  |            |      |             |  |            |      |  |  |  |      | 
|--------------- |  | ---------- | ---- | ----------- |  | ---------- | ---- |  |  |  | ---- | 
|                |  | Copper     |      | Molybdenum 
|                |  |            |      |            
|                |  | Mill % (a) |      | Leach % (b) |  | Mill % (c)
|                |  |            |      |             |  |           
|Morenci         |  |            | 80.2 |             |  |            | 58.4 |  |  |  | N/A  | 
|Bagdad          |  |            | 85.8 |             |  |            | 44.4 |  |  |  | 67.3 | 
|Sierrita        |  |            | 84.1 |             |  |            | 53.0 |  |  |  | 78.9 | 
|Miami           |  |            | N/A  |             |  |            | 64.7 |  |  |  | N/A  | 
|Chino           |  |            | 77.9 |             |  |            | 53.1 |  |  |  | 16.9 | 
|Cobre           |  |            | 85.5 |             |  |            | 56.4 |  |  |  | N/A  | 
|Tyrone          |  |            | N/A  |             |  |            | 64.2 |  |  |  | N/A  | 
|Candelaria      |  |            | 92.0 |             |  |            | N/A  |  |  |  | N/A  | 
|Ojos del
Salado |  |            | 88.3 |             |  |            | N/A  |  |  |  | N/A  | 
|Cerro Verde     |  |            | 84.8 |             |  |            | 71.5 |  |  |  | 59.4 | 
|El Abra         |  |            | N/A  |             |  |            | 65.9 |  |  |  | N/A  | 
|Climax          |  |            | N/A  |             |  |            | N/A  |  |  |  | 86.8 | 
|Henderson       |  |            | N/A  |             |  |            | N/A  |  |  |  | 85.8 | 
|Safford         |  |            | N/A  |             |  |            | 70.0 |  |  |  | N/A  | 



|(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.                                               





---



##### 



- 19 -

Mill and Leach Stockpiles

Stockpiled copper-bearing material that has
been removed from the mine,
and for which we have reasonable certainty of processing is summarized below:

(in million tons)

|                  |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  |     | 
|----------------- | ------------------ |  | --------- | ----- | ------ |  | --------- | ---- | ----------- |  | --------- | ---- | ------ |  | -------- | --- | ----------- |  |  | ----- | --------- |  |  | ---- |  |  |  | ---- |  |  |  | --- | 
|                  |                    |  | 2002      |       | 2001  
|                  |                    |  |           |       |       
|                  |                    |  |           |       |        |  | Contained |      |             |  |           |      |        |  |          |     |             |  |  |       | Contained |  |  |      |  |  |  |      | 
|                  |                    |  | Stockpile |       | Copper |  | Recovery  |      | Recoverable |  | Stockpile |      | Copper |  | Recovery |     | Recoverable
|                  |                    |  | Material  |       | (%)    |  | (%)       |      | Copper      |  | Material  |      | (%)    |  | (%)      |     | Copper     
|                  |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |            
|Mill
stockpiles:  |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  |    
|                  | 100% basis         |  |           | 45    |        |  |           | 0.46 |             |  |           | 91.9 |        |  |          | 0.2 |             |  |  | 43    |           |  |  | 0.45 |  |  |  | 92.2 |  |  |  | 0.2 | 
|                  | Phelps Dodge
share |  |           |       |        |  |           |      |             |  |           |      |        |  |          | 0.2 |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  | 0.1 | 
|Leach
stockpiles: |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  |    
|                  | 100% basis         |  |           | 7,745 |        |  |           | 0.16 |             |  |           | 11.7 |        |  |          | 1.4 |             |  |  | 6,857 |           |  |  | 0.17 |  |  |  | 8.3  |  |  |  | 0.9 | 
|                  | Phelps Dodge
share |  |           |       |        |  |           |      |             |  |           |      |        |  |          | 1.2 |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  | 0.8 | 

Note: We did not have stockpiled molybdenum-bearing material that had been
removed from the mine at December 31, 2001 and 2002.

The determination of copper contained in
mill and leach stockpiles by
physical count is impracticable. We employ reasonable estimation methods to
determine such amounts.

Mill Stockpiles

Mill stockpiles contain low-grade ore that has
been extracted from the
mine and is available for processing to recover the contained copper by
milling, concentrating, smelting and refining. The quantity of material
delivered to the stockpiles is based on surveyed volumes of mined material and
daily production records. Sampling and assaying of blast-hole cuttings
determine the estimated amount of copper contained in the material delivered to
the mill stockpiles.

Expected copper recovery rates are
determined by metallurgical testing.
The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately upon processing. Estimates of copper contained
in mill stockpiles are reduced as material is removed and fed to the mill.

Leach Stockpiles

Leach stockpiles contain low-grade ore that
has been extracted from the
mine and is available for processing to recover the contained copper through a
leaching process. Leach stockpiles are exposed to acidic solutions that
dissolve contained copper and deliver the copper in solution to the extraction
processing facilities. The quantity of material is based on surveyed volumes
of mined material and daily production records. Sampling and assaying of
blast-hole cuttings determine the estimated amount of copper contained in
material delivered to the leach stockpiles.

Expected copper recovery rates are
determined using small-scale laboratory
tests, medium-scale column testing (which simulates the production-scale
process), historical trends and other factors, including mineralogy of the ore
and rock type.

Ultimate recovery of copper contained in
leach stockpiles can vary from a
very low percentage to over 90 percent depending on several variables including
type of processing, mineralogy and particle size of the rock. Although as much
as 70 percent of the copper ultimately recoverable may be extracted during the
first year of processing, recovery of the remaining copper may take several
years.





---



##### 



- 20 -

The estimated recoverable copper
contained in stockpiles at each mine
follows:

(in million tons)

|                  |                    |  |              |     |      |  |     |     | 
|----------------- | ------------------ |  | ------------ | --- | ---- |  | --- | --- | 
|                  |                    |  | December 31,
|                  |                    |  |             
|                  |                    |  | 2002         |     | 2001
|                  |                    |  |              |     |     
|Mill
stockpiles:  |                    |  |              |     |      |  |     |    
|                  | Candelaria         |  |              | 0.2 |      |  |     | 0.2 | 
|                  |                    |  |              |     |      |  |     |    
|Leach
stockpiles: |                    |  |              |     |      |  |     |    
|                  | Morenci            |  |              | 0.4 |      |  |     | 0.4 | 
|                  | Bagdad             |  |              | 0.1 |      |  |     |    | 
|                  | Sierrita           |  |              | 0.1 |      |  |     |    | 
|                  | Miami              |  |              | 0.1 |      |  |     | 0.1 | 
|                  | Chino              |  |              | 0.4 |      |  |     | 0.2 | 
|                  | Tyrone             |  |              | 0.1 |      |  |     | 0.1 | 
|                  | Cerro Verde        |  |              | 0.1 |      |  |     |    | 
|                  | El Abra            |  |              | 0.1 |      |  |     | 0.1 | 
|                  |                    |  |              |     |      |  |     |    
|                  |                    |  | 1.4          |     |      |  | 0.9 |    
|                  |                    |  |              |     |      |  |     |    
|                  | Total              |  |              | 1.6 |      |  |     | 1.1 | 
|                  | Phelps Dodge
share |  |              | 1.4 |      |  |     | 0.9 | 

Note: The mill stockpiles are expected to be processed late in the Candelaria
mines life as milling capacity is available. The leach stockpiles are
expected to be processed over the lives of the respective mines. We began
capitalization of costs for mill and leach stockpiles when we had reasonable
certainty that the material would be processed. The capitalized costs are
evaluated periodically to ensure carrying amounts are stated at the lower of
cost or market. (Refer to Notes 1 and 7 to the Consolidated Financial
Statements for additional financial information regarding mill and leach
stockpiles.)

Our estimated share of aggregate copper
and molybdenum ore reserves as of
December 31 was as follows:

|                                                        |                                       |  |      |      |      |  |      |      |      |  |      |      |  |  |     |      |  |  |     |      | 
|------------------------------------------------------- | ------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | --- | ---- |  |  | --- | ---- | 
|                                                        |                                       |  | 2002 |      | 2001 |  | 2000 |      | 1999 |  | 1998
|                                                        |                                       |  |      |      |      |  |      |      |      |  |     
|Milling reserves (billion
tons)                         |                                       |  | 3.4  |      |      |  | 3.6  |      |      |  | 4.3  |      |  |  | 4.2 |      |  |  | 1.6 |     
|Leaching reserves (billion
tons)                        |                                       |  | 4.3  |      |      |  | 5.2  |      |      |  | 3.8  |      |  |  | 4.1 |      |  |  | 3.2 |     
|Commercially
recoverable copper (million of tons):      |                                       |  |      |      |      |  |      |      |      |  |      |      |  |  |     |      |  |  |     |     
|                                                        | Ore reserves                          |  |      | 19.6 |      |  |      | 22.1 |      |  |      | 23.1 |  |  |     | 23.7 |  |  |     | 13.7 | 
|                                                        | Stockpiles and in-process
inventories |  |      | 1.4  |      |  |      | 0.9  |      |  |      | 1.0  |  |  |     | 0.7  |  |  |     | 0.8  | 
|                                                        |                                       |  |      |      |      |  |      |      |      |  |      |      |  |  |     |      |  |  |     |     
|                                                        | Total                                 |  |      | 21.0 |      |  |      | 23.0 |      |  |      | 24.1 |  |  |     | 24.4 |  |  |     | 14.5 | 
|Commercially
recoverable molybdenum (billion of pounds) |                                       |  | 2.1  |      |      |  | 2.1  |      |      |  | 2.2  |      |  |  | 2.2 |      |  |  |    |     

Ore reserves reported by Southern Peru
Copper Corporation (SPCC) (in which
we hold a 14.0 percent interest) as of December 31, 2002, for its Peruvian
properties were approximately 2 billion tons of millable reserves at a grade of
0.68 percent copper and approximately 2 billion tons of leachable reserves at
an average grade of 0.20 percent copper. These in-pit reserves are the
combined totals for both the Cuajone and Toquepala properties. SPCC is
controlled by its majority shareholder, Grupo Mexico. We have relied on SPCCs
public filings and have not conducted an independent review of its ore
reserves.





---



##### 



- 21 -

Copper and Molybdenum Prices

The volatility of copper and molybdenum
prices is reflected in the
following table, which gives the high, low and average COMEX price of
high-grade copper and the Platts Metals Weekmean price of molybdenum oxide for
each of the last 15 years:

|                          |  |                                       |     |     |  |         |     |      |  |     |     |         |  |  |       |  |  |  |      |  |  |  |      | 
|------------------------- |  | ------------------------------------- | --- | --- |  | ------- | --- | ---- |  | --- | --- | ------- |  |  | ----- |  |  |  | ---- |  |  |  | ---- | 
|Cents per pound of
Copper |  | Dollars per pound of Molybdenum
Oxide
|COMEX                     |  | Platts Metals Week                   
|                          |  |                                      
|Year                      |  | High                                  |     | Low |  | Average |     | High |  | Low |     | Average
|                          |  |                                       |     |     |  |         |     |      |  |     |     |        
|1988                      |  |                                       | 165 |     |  |         | 87  |      |  |     | 115 |         |  |  | 4.40  |  |  |  | 2.98 |  |  |  | 3.47 | 
|1989                      |  |                                       | 160 |     |  |         | 99  |      |  |     | 125 |         |  |  | 3.89  |  |  |  | 2.44 |  |  |  | 3.40 | 
|1990                      |  |                                       | 138 |     |  |         | 96  |      |  |     | 119 |         |  |  | 3.30  |  |  |  | 2.52 |  |  |  | 2.85 | 
|1991                      |  |                                       | 120 |     |  |         | 96  |      |  |     | 105 |         |  |  | 2.78  |  |  |  | 2.08 |  |  |  | 2.38 | 
|1992                      |  |                                       | 116 |     |  |         | 93  |      |  |     | 103 |         |  |  | 2.44  |  |  |  | 1.82 |  |  |  | 2.21 | 
|1993                      |  |                                       | 107 |     |  |         | 72  |      |  |     | 85  |         |  |  | 2.80  |  |  |  | 1.82 |  |  |  | 2.32 | 
|1994                      |  |                                       | 140 |     |  |         | 78  |      |  |     | 107 |         |  |  | 17.00 |  |  |  | 2.68 |  |  |  | 4.51 | 
|1995                      |  |                                       | 146 |     |  |         | 121 |      |  |     | 135 |         |  |  | 17.50 |  |  |  | 3.90 |  |  |  | 8.08 | 
|1996                      |  |                                       | 131 |     |  |         | 86  |      |  |     | 106 |         |  |  | 5.50  |  |  |  | 2.90 |  |  |  | 3.79 | 
|1997                      |  |                                       | 123 |     |  |         | 76  |      |  |     | 104 |         |  |  | 4.90  |  |  |  | 3.52 |  |  |  | 4.31 | 
|1998                      |  |                                       | 86  |     |  |         | 64  |      |  |     | 75  |         |  |  | 4.60  |  |  |  | 2.00 |  |  |  | 3.41 | 
|1999                      |  |                                       | 85  |     |  |         | 61  |      |  |     | 72  |         |  |  | 2.90  |  |  |  | 2.48 |  |  |  | 2.65 | 
|2000                      |  |                                       | 93  |     |  |         | 74  |      |  |     | 84  |         |  |  | 2.98  |  |  |  | 2.15 |  |  |  | 2.56 | 
|2001                      |  |                                       | 87  |     |  |         | 60  |      |  |     | 73  |         |  |  | 2.65  |  |  |  | 2.15 |  |  |  | 2.36 | 
|2002                      |  |                                       | 78  |     |  |         | 65  |      |  |     | 72  |         |  |  | 8.30  |  |  |  | 2.40 |  |  |  | 3.77 | 

Phelps Dodges reported ore
reserves are economic at a three-year
historical average COMEX copper price of 76 cents per pound and a three-year
historical average molybdenum price of $2.89 per pound (Metals WeekMean Dealer
Oxide).

Phelps Dodge develops its business plans
using a time horizon that is
reflective of the historical, moving average for the full price cycle. We
currently use a long-term average COMEX price of 90 cents per pound of copper
and an average molybdenum price of $3.40 per pound (Metals WeekMean Dealer
Oxide), along with near-term price forecasts reflective of the current price
environment to develop mine plans and production schedules.

The per pound COMEX copper price over
the past 10 years, 15 years and 20
years averaged 91 cents, 99 cents and 91 cents, respectively. The per pound
Metals WeekMean Dealer Oxide molybdenum price over the same periods averaged
$3.78, $3.47 and $3.44, respectively.





---



##### 



- 22 -

Mineralized Material

We hold various properties containing
mineralized material that we believe
could be brought into production should market conditions warrant. Permitting
and significant capital expenditures would likely be required before operations
could commence at these properties. The deposits are estimated to contain the
following mineralized material as of December 31, 2002:

|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       |        |  |          |      |  |  |  |      |  |  |  |       |  |  | 
|-------------------- |  | ---------- |  | ------- | --- | ---------------- |  | ----------------- | ---- | -------- |  | ------ | ----- | ------ |  | -------- | ---- |  |  |  | ---- |  |  |  | ----- |  |  | 
|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       |        |  |          |      |  |  |  |      |  |  |  |       | 
|                     |  |            |  |         |     | Milling Material |  | Leaching Material |      |          |  |        |       | Phelps
|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       | Dodge 
|                     |  |            |  |         |     | Millions         |  | %                 |      | Millions |  | %      |       | %      |  | Interest
|Property/Deposit     |  | Location   |  | of Tons |     | Copper           |  | of Tons           |      | Copper   |  | Nickel |       | (%)   
|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       |       
|Ambatovy (1)         |  | Madagascar |  |         |    |                  |  |                   |     |          |  |        | 210   |        |  |          |     |  |  |  | 1.10 |  |  |  | 100.0 | 
|Ajo (2)              |  | Arizona    |  |         | 205 |                  |  |                   | 0.50 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 100.0 | 
|Candelaria Norte
(3) |  | Chile      |  |         | 12  |                  |  |                   | 2.15 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 80.0  | 
|Cochise/Bisbee       |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 276   |        |  |          | 0.47 |  |  |  |     |  |  |  | 100.0 | 
|El Abra              |  | Chile      |  |         | 650 |                  |  |                   | 0.53 |          |  |        | 100   |        |  |          | 0.31 |  |  |  |     |  |  |  | 51.0  | 
|Lone Star
(Safford)  |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 1,600 |        |  |          | 0.38 |  |  |  |     |  |  |  | 100.0 | 
|Lumwana              |  | Zambia     |  |         | 220 |                  |  |                   | 0.83 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 50.0  | 
|Morenci              |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 567   |        |  |          | 0.25 |  |  |  |     |  |  |  | 85.0  | 
|Niagara
(Tyrone)     |  | New Mexico |  |         |    |                  |  |                   |     |          |  |        | 500   |        |  |          | 0.29 |  |  |  |     |  |  |  | 100.0 | 
|Safford              |  | Arizona    |  |         | 330 |                  |  |                   | 0.65 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 100.0 | 
|Sanchez
(Safford)    |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 230   |        |  |          | 0.29 |  |  |  |     |  |  |  | 100.0 | 
|Tohono               |  | Arizona    |  |         | 276 |                  |  |                   | 0.70 |          |  |        | 404   |        |  |          | 0.63 |  |  |  |     |  |  |  | 100.0 | 

|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: |  | Mineralized material has been delineated by appropriately spaced
drilling and/or underground sampling to support the reported tonnage
and average grade of metal(s). Such a deposit does not qualify as
an ore reserve until legal and economic feasibility is concluded
based upon a comprehensive evaluation of implied unit costs, grade,
recoveries and other material factors.
|     
|(1)   |  | Ambatovy deposit also contains 0.10 percent
cobalt.                                                                                                                                                                                                                                                                                                                                
|     
|(2)   |  | Material previously characterized as ore reserves at the Ajo
development property was reclassified as mineralized material in
2002 as a result of an updated mine plan and economic assessment.                                                                                                                                                                                    
|     
|(3)   |  | Candelaria Norte is a potential underground mine that would utilize
the existing process facilities and infrastructure. The stated
tonnage also contains 0.015 ounces of gold per ton.                                                                                                                                                                                             





---



##### 



- 23 -

Sales and Competition

U.S. Mining Operations

The majority of our copper, produced or
purchased, at our U.S. operations
is cast into rod. Rod sales to outside wire and cable manufacturers
constituted approximately 70 percent of PDMCs U.S. sales in 2002, 65 percent
in 2001 and 79 percent in 2000. The remainder of our U.S. copper sales are
primarily in the form of copper cathode or copper concentrate. Sales of rod
and cathode are made directly to wire and cable fabricators and brass mills
under contracts principally of a one-year duration. Our rod also is used by
our Wire and Cable segment. We generally sell our copper rod and cathode
produced at our U.S. operations at a premium over New York Commodity Exchange
(COMEX) prices.

South American Mines

The production from our South American
Mines is sold as copper concentrate
or as copper cathode. Our Candelaria mine sells its production in the form of
copper concentrates primarily to copper smelters located in Japan and the rest
of Asia under long-term, multi-year contracts or on a spot basis through
merchants. In addition, a portion of Candelarias production is shipped to
North America for further processing at our U.S. operations. El Abra produces
copper cathodes that are sold primarily under annual or multi-year contracts to
Asian or European rod or brass mill customers or to merchants. Cerro Verde
produces copper cathode; the majority of which are shipped to our U.S. rod
mills for processing. The remainder of Cerro Verdes production is sold under
annual contracts to South American customers or to merchants on a spot basis.
The copper cathode sold by our international operations generally is sold at a
premium over London Metal Exchange (LME) prices. We also sell copper
concentrate based on COMEX or LME prices.

Worldwide Copper Mining Operations

From time to time, we engage in hedging
programs designed to enable us to
realize current average prices for metal delivered or committed to be
delivered. We also have entered into price protection arrangements from time
to time, depending on market circumstances, to ensure a minimum price for a
portion of expected future mine production.

Most of the refined copper we sell is
incorporated into electrical wire
and cable products worldwide for use in the construction, electric utility,
communications and transportation industries. It also is used in industrial
machinery and equipment, consumer products and a variety of other electrical
and electronic applications.

When we sell copper as rod, cathode and
concentrate, we compete, directly
or indirectly, with many other sellers including at least two other U.S.
primary producers as well as numerous foreign producers, metal merchants,
custom refiners and scrap dealers. Some major producers outside the United
States have cost advantages resulting from richer ore grades, lower labor costs
and in some cases, a lack of strict regulatory requirements. We believe our
ongoing programs to contain costs, improve productivity and employ new
technologies will significantly narrow these cost advantages and place us in a
more competitive position with respect to a number of our international
competitors.

Other materials that compete with copper
include aluminum, plastics,
stainless steel and fiber optics. Our principal methods of competing include
pricing, product properties, product quality, customer service and
dependability of supply.

Primary Molybdenum Segment

Molybdic oxide is used primarily in the steel
industry for corrosion
resistance, strengthening and heat resistance. Molybdenum chemicals are used
in a number of diverse applications such as catalysts for petroleum refining, lubricants and
feedstock for pure molybdenum metal used in electronics. A substantial portion
of Phelps Dodges expected 2003 molybdenum production is committed for sale
throughout the world pursuant to annual and/or quarterly agreements based
primarily on prevailing market prices one month prior to the time of sale.

The molybdenum market is generally
characterized by cyclical and volatile
prices, little product differentiation and strong competition. Prices are
influenced by production costs of domestic and foreign competitors, worldwide
economic conditions, world supply/demand balances, inventory levels, the U.S.
dollar exchange rate and other factors. Molybdenum prices also are affected by
the demand for end-use products in, for example, the construction,
transportation and durable goods markets. A substantial portion of world
molybdenum is produced as a by-product of copper mining, which is relatively
insensitive to molybdenum price levels. China exports quantities of molybdenum
that represent a significant portion of world consumption. China also imports
quantities of molybdenum but usually, we believe, in quantities significantly
less than it exports. Because of their size, Chinas net exports can
significantly affect the balance of supply and demand, and pricing, in the
world molybdenum market. Our estimates place Chinas molybdenum net exports at
approximately 20 to 25 percent of global consumption.





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- 24  -

Prices, Supply and Consumption

Worldwide Copper Mining Operations

Copper is an internationally traded
commodity, and its prices are
effectively determined by the two major metals exchanges  COMEX and LME. The
prices on these exchanges generally reflect the worldwide balance of copper
supply and demand, but are also influenced significantly from time to time by
speculative actions and by currency exchange rates.

Copper is a critical component of the
worlds infrastructure. The demand
for copper ultimately reflects the rate of underlying world economic growth,
particularly the growth in industrial production, construction and durable
goods. Coppers end-use markets reflect its fundamental role in the world
economy. Estimated percentages of copper consumption by end-use markets
comprise (i) construction  40 percent, (ii) electrical applications  25
percent, (iii) industrial machinery  15 percent, (iv) transportation  10
percent, and (v) consumer products  10 percent. Since 1990, refined copper
consumption grew by an estimated compound rate of 2.8 percent to 15 million
tons according to published data by the World Bureau of Metals Statistics
(WBMS) and PDs estimate for 2002. This rate of increase was slightly higher
than the growth of world industrial production, which grew at an estimated
compound annual rate of 2.3 percent over the same period. Asian copper
consumption, led by China, was particularly strong, increasing by 5.9 percent
per year from 1990 through 2002. Asia now represents approximately 43 percent
of world refined copper consumption compared with 25 percent for Europe and 25
percent for the Americas. The strong demand for copper in Asia has been driven
by the increasing standard of living in this region as well as production of
value added products for export to the developed world.

From 1990 through 2002, refined copper
production has grown at an average
annual rate of 2.9 percent according to WBMS (based on published data through
2001) and PDs estimate for 2002. This growth was encouraged by a number of
factors. First, limited investment in new mine production in the latter half
of the 1980s coupled with growing demand for copper during that period resulted
in market deficits and declining copper inventories that in turn encouraged new
investment. Second, an improved investment climate in Latin America,
particularly Chile, encouraged investment in this region. In 2002, Latin
America represented 44 percent of world mine production, a significant increase
from 25 percent in 1990. Third, SX/EW technology made some previously
uneconomic resources viable investments.

Copper demand and price tend to follow
economic cycles and, therefore,
copper price has historically experienced significant fluctuations.
Considering the period from 1990 to 2002, the LME price of copper averaged 95
cents per pound, and ranged from a high annual average price of $1.33 per pound
in 1995 to a low annual average price of 71 cents per pound in 2002. The COMEX
price of copper averaged 95 cents per pound from 1990 through 2002, but has
ranged from a high annual average price of $1.35 per pound in 1995 to a low
annual average price of 72 cents per pound in 2002.

In 2002, the average COMEX copper price
of 72 cents per pound was 1 cent
less than the 2001 average price. Continued low prices resulted from weak
global economic conditions and a resulting modest surplus of production over
consumption. More than 175,000 metric tons of excess metal in the market was
delivered into LME and COMEX warehouses, bringing the combined inventories to
historically high levels of more than 1.2 million metric tons. Demand for
copper remained sluggish in 2002 increasing a modest 1.8 percent from 2001
levels as copper consumption in many regions, particularly the United States,
Europe and Japan, remained weak as the result of depressed global economic
conditions. Expectations of improvement in global manufacturing diminished as
technology, telecommunications and electronics sectors stagnated. Chinese
copper demand, however, continued to outpace the rest of the world as
government infrastructure projects, an expanding industrial complex and
increasing domestic prosperity led to the third year of double digit growth in
copper consumption.

World refined copper production declined
1.7 percent in 2002 from 2001 due
to a number of announced production curtailments. Beginning in October 2001,
world copper producers, including Phelps Dodge, independently announced a
series of production curtailments with a combined total of approximately
580,000 metric tons of copper. The cutbacks served to curb production of
copper in concentrates and corresponding global primary refined production. As
a result, the copper market moved back into balance during the second half of
2002, as evidenced by modest declines in reported LME and COMEX warehouse
stocks. The tightened supply chain, however, was not enough to prevent a
150,000 metric ton surplus for the year.

In 2001, the COMEX copper price averaged
73 cents per pound, 11 cents less
than the 2000 average price. The decrease in price was the result of a surplus
market as modest growth in refined production outpaced weak global demand for
metal. The market imbalance resulted in approximately 627,000 metric tons of
excess copper being delivered into western world exchange inventories,
increasing warehouse stocks to more than 1 million metric tons. The
signifi-





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cant rise in inventory caused the price to fall below the 70-cent level
where it remained for nearly all of the second half of 2001. Weakness in the
U.S. and Japanese economies reduced world demand for copper, particularly in
the electronics and technology sectors where metal off-take had been expanding.
Output from manufacturing industries in the large copper consuming regions of
the world were slowed by the economic downturn, especially those heavily
dependent on export markets in the United States, Europe and Japan. The lone
bright spot in the copper market was China whose economy continued to expand
supported by increases in consumer demand, government-funded infrastructure
projects, and its acceptance into the World Trade Organization.

The COMEX copper price averaged 84
cents per pound for the year 2000, a
12-cent improvement over the previous year. The increase in price was
triggered by deficit market conditions created by robust demand for the metal
coupled with lower world copper production growth following the closure of
nearly 780,000 metric tons of capacity during 1998 and 1999. After having
added nearly 480,000 metric tons during the previous two years, combined
Western exchange inventories topped 930,000 metric tons in early March 2000.
During the remainder of the year, LME and COMEX inventories declined by
approximately 515,000 metric tons to end the year at 415,000 metric tons, a
decline of 52 percent from the beginning of the year.

Primary Molybdenum Segment

Molybdenum demand depends heavily on
worldwide steel industry consumption
and to a lesser extent on chemical applications. During 2002, demand in the
United States held steady compared with 2001; however, demand in Europe and
Japan declined slightly compared with 2001. Overall global demand decreased
slightly in 2002 compared with 2001. We estimate consumption declined
approximately 1 percent in 2002. Our estimates for worldwide production
indicate an approximate 4 percent decline in 2002 compared with 2001. The
decline in 2002 was primarily due to production curtailments at several large
copper mines that produce molybdenum as a by-product. Overall, primary
molybdenum mines appear to have maintained production cuts, which took place in
prior years. The additional production curtailments in 2002 and relatively
flat global consumption levels placed the overall molybdenum market in slight
deficit for 2002. The molybdenum business and prices improved during the year
from 2001 levels as a result of the tight supply market.

Molybdenum prices experienced a steady
rise during the first five months
of 2002. In the month of June, molybdenum prices spiked hitting a Metals Week
dealer oxide weekly average high of $7.90 per pound and a monthly Metals Week
dealer oxide mean price of $6.93 per pound. Molybdenum prices moved downwards
in the following months ending at $3.26 per pound for the month of December.
Metals Weekdealer oxide mean prices averaged $3.77 per pound in 2002 compared
with $2.36 per pound in 2001. The production curtailments and tightness of
supply caused molybdenum prices to improve from their previous low levels.
Phelps Dodge received an average realized price of $4.57 per pound in 2002,
compared with $3.64 per pound in 2001, reflecting a broad mix of upgraded molybdenum products as well as
technical grade molybdic oxide.

Costs

Worldwide Copper Mining Operations

Implied unit cost of copper
production measures the all-in cost of
each pound of copper produced by PDMC. As the title indicates, this measure is
the cost implied by the market price of copper (i.e., LME average spot) for a
given period versus PDMCs operating income (loss) for the same period.

There is no established common standard
for calculating unit production
costs in the copper industry. PDMCs implied unit production costs indicator
(which is based on readily accessible, publicly disclosed data) acts as a proxy
to enable investors to follow and interpret cost trends over historical
periods.

PDMC calculates its all-in operating
margin per pound of copper sold by
dividing its operating income (loss) excluding special items by the total
pounds of copper sold from its own mines for its own account. This results in
an all-in operating margin (i.e., inclusive of cost of products sold;
depreciation, depletion and amortization; selling and general administrative
expense; and exploration and research expense for the segments operations)
that is compared with the market price of copper to render an implied cost of
copper production.

In 2002, the full and cash implied unit cost of
copper production each
decreased 7 cents per pound compared with 2001. In 2002, approximately 3 cents
of the cost improvement was due to lower energy costs, and the remainder was
primarily due to operational improvements associated with the Companys Quest
for Zeroprogram.

In 2001, the full and cash implied unit cost of
copper production
increased 4 and 2 cents per pound, respectively, compared with 2000, primarily
due to slightly higher energy costs (approximately 1 cent). The remainder of
the increase in the full implied unit cost was primarily due to depreciation
expense.





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Energy, including electricity, diesel fuel and
natural gas, represents a
significant portion of the production costs for our operations. During the
first quarter of 2001 and much of 2000, our Arizona and New Mexico operations
were affected adversely by significantly higher costs for all three.

In response, the Company implemented a
power cost stabilization plan in
March 2001 that consisted of an additional negotiated firm power contract; the
construction of a power co-generation plant in New Mexico; short-term,
alternating production curtailments at the Companys Tyrone, Sierrita, Bagdad
and Henderson operations; and a partial production curtailment at Chino.

Additionally, to mitigate the
Companys exposure to increases in diesel
fuel and natural gas prices, we implemented several price protection programs
in late 2000 and early 2001 designed to protect the Company against a
significant upward movement in energy prices. The Companys diesel fuel price
protection program consisted of a combination of purchasing out-of-the-money
(OTM) diesel fuel call options and fixed-price diesel fuel swaps for our North
American operations. The OTM call options give the holder the right, but not
the obligation, to purchase a specific commodity at a pre-determined dollar
cost, or strike price. OTM call options are options with a strike price
above the prevailing market price for that commodity when purchased.

The OTM diesel fuel call options mitigated a
portion of our exposure to
volatile markets by capping the cost of the commodity if prices were to rise
above the strike price. If the price of diesel fuel is lower than the strike price, the Company has the
flexibility to purchase diesel fuel at prices lower than the strike price and
the options expire with no value. The swaps allow us to establish a fixed
price for a specific commodity product for delivery during a specific future
period.

Our natural gas price protection program
consisted of purchasing OTM call
options or OTM collars for our North American operations. OTM call options
capped the commodity purchase cost at the strike price while allowing the
Company the ability to purchase natural gas at a lower cost when market prices
were lower than the strike price. The purchase of collars (the simultaneous
purchase of an OTM call option and the sale of an OTM put option) allows us to
establish both a price ceiling and a price floor for natural gas costs.

As a result of the above-mentioned plans
and programs, in 2002 and 2001
Phelps Dodge was able to reduce and partially mitigate the impacts of volatile
electricity markets and rising diesel fuel and natural gas prices.

Environmental and Other Regulatory Matters

U.S. Mining Operations

Significant Federal Environmental Programs

Our operations in the United States are
subject to stringent federal,
state and local laws and regulations relating to improving or maintaining
environmental quality. Our global operations are also subject to many
environmental protection laws in the jurisdictions where we operate. We pursue
environmental performance at all of our operations with the same diligence that
we pursue financial, health and safety performance. We are committed to
pollution prevention and responsible environmental stewardship worldwide.

Environmental regulatory programs create
potential liability for our
domestic operations, which may result in requirements to perform environmental
investigations or corrective actions under federal and state laws, in addition
to federal and state Superfund requirements (refer to the discussion of
Superfund requirements in OTHER ENVIRONMENTAL MATTERS). Major environmental
programs and developments of particular interest are summarized in the
paragraphs that follow.

Most air emissions from our domestic
operations are subject to regulation
under the federal Clean Air Act (CAA) and related state laws. These laws
impose permitting, performance standards, emission limits, and monitoring and
reporting requirements on sources of regulated air pollutants.

Several of our domestic operations have
obtained, or are in the process of
obtaining, major source operating permits under Title V of the CAA and related
state laws. Facilities with smelters, rod mills, molybdenum roasters and power
plants are the primary examples of our operations that are subject to this
program. These permits typically do not impose new substantive requirements,
but rather incorporate in one permit all existing requirements. However, they
can increase compliance costs by imposing new monitoring requirements, such as
more frequent emission testing, to demonstrate compliance with existing
requirements. The process of developing these comprehensive permits also can
bring to light new or previously unknown agency interpretations of existing
regulations, which also may increase compliance costs.

At least one of our smelters will be subject
to one or more Maximum
Achievable Control Technology (MACT) standards under the CAA. These standards
do not have immediate compliance dates; instead they allow two or three years
after promulgation to provide the opportunity to come into compliance or to
reduce





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emissions to avoid regulation before the compliance date. For example,
the copper smelter MACT standard was issued in 2002, and the
compliance date for that standard is June 2005. Other potentially
applicable MACT standards are still in development. Therefore, we still are in
the process of determining applicability and compliance strategies.

Most discarded materials from our domestic
operations are subject to
regulation as solid waste under the federal Resource Conservation and Recovery
Act (RCRA) and related state laws. These laws impose design, operating,
closure and post-closure care requirements on facilities used to store, treat
or dispose of solid waste.

Mineral extraction (mining) and
beneficiation (the concentration of
economic minerals) occurs at our mining operations. The solid wastes uniquely
associated with these activities are exempt from hazardous waste regulation.
Mineral processing (the alteration of a mineral from one mineralogic state to
another) occurs at our smelter, refinery and molybdenum roasting operations.
Except for a list of 20 exempt processing wastes (three of which include wastes
from copper mineral processing operations), all mineral processing wastes
generated at our domestic mining operations are subject to hazardous waste
regulation if they exhibit a hazardous waste characteristic or if the U.S.
Environmental Protection Agency (EPA) specifically designates them as a listed
hazardous waste. In 1998, EPA finalized its supplemental Land Disposal
Restriction Phase IV (LDR) rules that imposed regulation on hazardous mineral
processing wastes that are stored before they are recycled or disposed. This
final LDR rule also subjects mineral processing wastes that exhibit a hazardous
waste characteristic to stringent treatment standards if the materials are
disposed on land. A portion of the LDR rule was judicially vacated on appeal.
While EPAs final LDR rule likely will require us to continue to make
expenditures to manage hazardous mineral processing wastes, it is not possible
to determine the full impact on us of the new LDR requirements until the
requirements are fully adopted and implemented.

The federal Emergency Planning and
Community Right-to-Know Act was
expanded in 1997 to cover mining operations. This law, which has applied to
other Phelps Dodge businesses for more than a decade, requires companies to
report to EPA the amount of certain materials managed in or released from their
operations each year. Annually, we report the volume of naturally occurring
minerals and other substances that we managed during the previous year once the
usable metals were extracted. These materials are very high in volume and how
they are managed is covered by existing regulations and permit requirements.

The federal National Pollutant Discharge
Elimination System (NPDES)
program requires a permit for the point source discharge of pollutants to
surface waters that qualify as waters of the United States. Although most
states have received authorization to implement this program in lieu of EPA,
New Mexico has not received such authorization and therefore the NPDES permit
program in New Mexico continues to be implemented primarily by EPA. On
December 5, 2002, Arizona obtained authorization to implement the NPDES permit
program in the state. Colorado has maintained authorization of the NPDES
program for several years. The NPDES permit program also regulates the
discharge of storm water runoff from active and inactive mines and construction
activities. EPA and authorized states have issued general permits that cover
discharges from active and inactive mines. We likely will continue to have to
make expenditures to comply with the NPDES permit program, especially as the
program continues to expand as applied to storm water discharges.

Significant Arizona Environmental and
Reclamation Programs

The Arizona Department of Environmental
Quality (ADEQ) has adopted
regulations for its aquifer protection permit (APP) program that replaced the
previous Arizona groundwater quality protection permit regulations. Several of
our properties continue to operate pursuant to the transition provisions for
existing facilities under the APP regulations. The APP regulations require
permits for certain facilities, activities and structures for mining,
concentrating and smelting. The APP requires compliance with aquifer water
quality standards at an applicable point of compliance well or location. The APP also may require mitigation and
discharge reduction or elimination of some discharges. Existing facilities
operating under the APP transition provisions are not required to modify
operations until requested by the state of Arizona, or unless a major
modification at the facility alters the existing discharge characteristics. We
have received an APP for our Morenci operations, for portions of our Bagdad and
Miami mines, for the sewage treatment facility at Ajo, and for a closed tailing
pile in Clarkdale, Arizona. We have also conducted groundwater studies and
submitted APP applications for several of our other properties and facilities,
including the Bagdad, Sierrita and Miami mines, our Safford development
property and Ajo, Copper Queen and United Verde branches. We will continue to
submit all required APP applications for our remaining properties and
facilities, as well as for any new properties or facilities. We do not know
what the APP requirements are going to be for all existing and new facilities
and, therefore, it is not possible for us to estimate costs associated with
those requirements. We are likely to continue to have to make expenditures to
comply with the APP program.





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An application for an APP requires a
description of a closure strategy to
meet applicable groundwater protection requirements following cessation of
operations and a cost estimate to implement the closure strategy. An APP may
specify closure requirements, which may include postclosure monitoring and
maintenance requirements. A more detailed closure plan must be submitted
within 90 days after a permittee notifies ADEQ of its intent to cease
operations. A permit applicant must demonstrate its financial capability to
meet the costs required under the APP, including closure costs.

Portions of the Companys Arizona
mining operations that operated after
January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety consistent
with post-mining land use objectives specified in a reclamation plan.
Reclamation plans require approval by the State Mine Inspector and must include
a cost estimate to perform the reclamation measures specified in the plan.
Financial assurance must be provided under AMLRA covering the estimated cost of
performing the reclamation plan.

Under both APP regulations and AMLRA, a
publicly traded company may
satisfy the financial assurance requirements by showing that its unsecured debt
rating is investment grade and that it meets certain requirements regarding
assets in relation to the estimated closure and post-closure cost and
reclamation cost estimates. If this test is not met, the permittee must
provide an alternative form of financial assurance that meets the requirements
of the applicable regulations or that is approved by ADEQ or the State Mine
Inspector, as applicable. The Companys Arizona operations have met the
applicable financial assurance requirements by supplying a demonstration of the
Companys investment-grade bond rating.

At December 31, 2002 and 2001, we
had accrued closure costs of
approximately $43 million and $38 million, respectively, for our Arizona
operations. The amount of financial assurance currently provided under both
regulatory programs is approximately $115 million. If the Companys bond
rating falls below investment-grade, the Arizona mining operations would be
required to supply financial assurance in another form.

Cyprus Tohono Corporation (Cyprus
Tohono), a wholly owned subsidiary of
Cyprus Amax, leases lands on the Tohono Oodham Indian Nation (the Nation).
The leased lands include the site of a mining operation, currently on
care-and-maintenance status, comprising an open pit, underground mine workings,
leach and non-leach rock stockpiles, tailing and evaporation ponds, SX/EW
operations, and ancillary facilities. Many of these facilities are covered by
Mine Plans of Operations (MPOs) that were issued by the federal Bureau of Land
Management (BLM). The leases and MPOs impose certain environmental compliance,
closure and reclamation requirements upon Cyprus Tohono. The closure and
reclamation requirements under the leases require action to be taken upon
termination of the leases, which currently expire between 2012 and 2017, unless
terminated earlier in accordance with the terms of the leases. Preliminary studies indicate that closure and
reclamation requirements,
excluding the potential Superfund environmental response costs discussed in
OTHER ENVIRONMENTAL MATTERS, are estimated to cost $5.0 million.

The Nation, along with several federal
agencies, have notified Cyprus
Tohono of groundwater quality concerns and concerns with other environmental
impacts of historical mining operations. In 2001, Cyprus Tohono conducted
additional groundwater investigations at the site. Analytical results from
samples taken from newly installed groundwater monitoring wells show
contaminants above primary or secondary drinking water standards. A
neighboring Native American villages water supply has been contaminated with
sulfate. Cyprus Tohono is providing an alternative supply to the village and
has installed two new water wells for the village. A pipeline to connect the
two new water wells to the village water system was completed in 2003. The
cost of the new wells was $175,000; the cost to complete the pipeline to the
village was approximately $175,000.

The Companys historic United Verde
Mine has obtained an APP for closure
of a tailing pond located near Clarkdale, Arizona, and is awaiting approval of
an APP for existing mine water discharge containment facilities at the mine
near Jerome, Arizona. The tailing pond has not received tailing discharges
since the early 1950s, but has received discharges of municipal sewage effluent
from the town of Clarkdale since the late 1970s. Closure work under the APP
for the tailing pond has been partially completed, but the remaining work has
not been completed pending the issuance of a stormwater discharge permit under
the Clean Water Act for construction of a related development project.
Construction of improvements under the proposed APP for the mine are expected
to begin following issuance of the APP, and implementation of the plan under
the proposed APP may be used to partially address the claims asserted by EPA
and the Department of Justice as described in Item 3 of the Legal Proceedings
section. A voluntary remediation project also is under way under supervision
of ADEQ at the nearby historic Iron King mine to treat potential discharges of
acidic water from an adit. Additional work may be required at historical mine
workings in the district that are owned by the Company to satisfy requirements
under storm water discharge permits. At the United Verde Mine, APP costs are
estimated to be





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$13.6 million; at the Clarkdale tailing, APP costs are
estimated to be $12.2 million; and at the Iron King Mine, voluntary remediation
costs are estimated to be $2.2 million. These amounts, totaling $28.0 million,
are included in environmental reserves.

Significant New Mexico Environmental and
Reclamation Programs

Mining and smelting operations with
leaching, tailing ponds, surface
impoundments and other discharging facilities in New Mexico are subject to
regulation under the New Mexico Water Quality Act and Water Quality Control
Commission (WQCC) Regulations. The Chino, Cobre and Tyrone mines and the
Hidalgo smelter each have obtained multiple discharge permits for their
operations, which specify operational, monitoring and notification
requirements. These permits are issued for five-year terms and require renewal
following the end of each permit term. The WQCC Regulations authorize the New
Mexico Environment Department (NMED), which administers the discharge permit
program, to require the submission of closure plans showing how applicable
discharge permit requirements will be met following closure. Under certain
circumstances, NMED also may require submission and approval of abatement plans
to address the exceedance of applicable water quality standards.

Further, Chino, Cobre, Tyrone and Hidalgo
must submit closure plans for
their operations. Hidalgo has an approved closure plan under its discharge
permit. The three mines have submitted closure plans, which have been combined
with closeout plans under the New Mexico Mining Act (NMMA), as discussed below.
The proposed closure plans currently are subject to approval by NMED as part
of separate discharge permits for closure for each of the three operations that
would supplement the existing discharge permits (hereinafter referred to as
closure permits). The proposed closure permits contain a number of permit
conditions that would modify the proposed closure plans. Chino Mines Company and NMED
reached agreement in December 2001 on proposed closure permit conditions
presented at a public hearing in February 2002. On January 23, 2003, NMEDs
hearing officer issued a decision approving the closure permit as proposed by
NMED and Chino, with minor changes. NMED issued a permit consistent with the
hearing officers decision on February 24, 2003. An appeal has been filed by a
local environmental group. Phelps Dodge Tyrone, Inc. and NMED were unable to
reach agreement on permit terms before a public hearing held in May 2002, and
presented competing permit proposals. Other parties who participated in the
public hearing presented their own proposals. On March 7, 2003, Tyrone
received the hearing officers decision on its permit, which generally adopted
NMEDs proposal. On April 2, 2003, Tyrone filed an appeal of the hearing
officers decision with the WQCC. NMED issued a permit in accordance with the
hearing officers decision on April 8, 2003, which Tyrone also expects to
appeal. Cobre Mining Company and NMED also have not reached agreement on the
terms of a closure permit. The closure permit for Cobre Mining Company does
not require a public hearing, and may be issued by NMED at any time.

Chino, Cobre and Tyrone also are subject to
permit requirements under
NMMA, which was passed in 1993. Following adoption of the New Mexico Mining
Act Rules (NMMAR) in 1994, Chino, Cobre and Tyrone received initial permits as
existing mining operations under NMMAR in 1997. These permits require
revisions to incorporate approved closeout plans, which consist of plans for
reclamation of the mining operations to achieve a self-sustaining ecosystem or
an approved post-mining land use following cessation of operations at a mine.
Existing mining operations may seek a waiver of these reclamation standards for
open pits and waste units based upon a demonstration that achieving these
standards is technically or economically infeasible or environmentally unsound,
as long as measures will be taken to meet air and water quality standards
following closure.

NMMAR originally required approval of a
closeout plan for an existing
mining operation by December 31, 1999, based upon an extension granted by the
Director of the Mining and Minerals Division (MMD). NMMAR subsequently was
amended to extend the deadline for closeout plan approval until December 31,
2001, and later to October 1, 2002. NMMAR contains a requirement that NMED
must provide MMD with a determination that a closeout plan meets applicable
environmental standards, including air and water quality standards, before MMD
can approve the closeout plan. NMEDs policy is to issue this determination
after it has issued closure permits for the facility that submits the closeout
plan. In early 2001, Chino, Cobre and Tyrone submitted comprehensive
closure/closeout plans (CCPs) to both NMED and MMD intended to address the
requirements of both the WQCC Regulations and NMMAR. Approval of the CCPs
under NMMAR would require the granting of waivers by MMD as authorized under
NMMAR. The CCPs were the subject of the public hearings before NMED for Chino
and Tyrone, as discussed above.

As of October 1, 2002, NMED had
not issued closure permits for Chino,
Cobre or Tyrone. Consequently, as of October 1, 2002, MMD had not approved
closeout permits for these three mines. As discussed in Item 3 of the Legal
Proceedings section, MMD issued Notices of Violation (NOVs) to Chino, Cobre and
Tyrone because the three mines did not obtain approved closeout plans by the
October 1, 2002, deadline. The NOVs were modified by the Mining Commission
following a public hearing to set new deadlines for closeout plan approval tied
to NMED permit actions.





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Based on NMEDs permit actions, closeout plan approval
for Chino is now due by September 24, 2003, and the closeout plan approval date
for Tyrone should be about April 8, 2004. The closeout plan approval deadline
for Cobre will be nine months from the date of NMEDs permit issuance, which is
currently pending.

NMMAR contains specific requirements
regarding financial assurance that
must be provided to MMD to assure that sufficient funds would be available to
MMD to carry out the closeout plan in the event of a default by the permittee.
NMED also may require financial assurance under the WQCC Regulations. The
financial assurance requirements are based upon the net present value of estimated costs to carry out the
requirements of
the closure permit and the approved closeout plan, assuming the state would
hire a third-party contractor to conduct the work. Actual reclamation costs
may differ significantly from the costs estimated under the permits due to
advances in technology and reclamation techniques and opportunities to prepare
each site for more efficient reclamation through careful development of the
site over time. Consequently, the estimated costs under the permits are higher
than the cost the Company would be expected to incur if the Company performed
the work.

The CCPs submitted in early 2001
contained cost estimates of approximately
$100 million for Chino, $121 million for Tyrone, and $9 million for Cobre,
based upon unescalated and undiscounted capital and operating costs over a
30-year operating period. The closure permit negotiated by NMED and Chino
Mines Company and approved by the NMED hearing officer has an estimated cost of
approximately $391 million, based upon third-party unescalated and undiscounted
capital and operating costs over a 100-year operating period. This cost
estimate will be adjusted to include the cost of technical studies required
under the permit conditions after a cost estimate for those costs has been
approved by NMED. The Companys two-thirds share of NMEDs $391 million
estimate is approximately $261 million and our joint venture partners cost
share is approximately $130 million. We estimate total costs to achieve the
closure standards required by NMED to be approximately $261 million. The
Companys cost estimate to achieve the New Mexico closure standards is
approximately one-third lower than the financial assurance cost estimate as a
result of the Companys historical cost advantages, savings from the use of the
Companys own personnel and equipment versus third-party contract costs, and
opportunities to prepare the site for more efficient reclamation. The
financial assurance cost estimate includes approximately $10 million (100
percent basis) of costs the Company has recognized in environmental reserves.
The Companys two-thirds share of these costs is approximately $174 million and
our joint venture partners cost share is approximately $87 million. At
December 31, 2002 and 2001, we had accrued approximately $8 million and $5
million, respectively, (two-thirds basis) for reclamation at Chino. The NMED
cost estimate for Chino is subject to further review, and possible adjustment,
by MMD under NMMAR.

NMED estimated the cost to carry out the
requirements of its proposed
closure permit for Tyrone at approximately $440 million, without discounting or
escalation, under NMEDs proposal at the May 2002 hearing; Tyrone estimated the
cost of its proposal at approximately $328 million, without discounting or
escalation over a 100-year operating period. NMED has not yet supplied its
proposed cost estimate for Cobre. The proposed terms of the closure permits
would require additional studies over the five-year term of the permits to
refine the closure plan. The plan requirements and cost estimates may increase
or decrease based upon the results of the studies and other factors, including
changes in technology, completion of some closure and reclamation work, and
inflation.

Based upon NMEDs undiscounted
financial assurance cost estimates for the
Tyrone plan of approximately $440 million, and considering the same cost
advantages as indicated in the above discussion regarding Chino, we estimate
the Companys costs to achieve the closure standards under that estimate to be
approximately $288 million for Tyrone. The Company has not obtained approval
from NMED of an estimate of its cost to achieve the closure standards that
would be required by the hearing officers decision. The Companys current
cost estimate for Cobre of approximately $9 million will be updated with the
issuance of the discharge permit. At December 31, 2002 and 2001, we had
accrued closure costs of approximately $27 million and $8 million,
respectively, at Tyrone and approximately $2 million at Cobre.

Following NMEDs issuance of the
closure permits, Chino, Cobre and Tyrone
are required to submit proposals for financial assurance based upon the permit
requirements and subject to NMEDs approval. Under the proposed closure permit
terms, the amount of financial assurance may be based upon the net present
value of the estimated cost for a third-party to implement the plan, using
discount and escalation rates specified in the permit. These amounts are
expected to be substantially lower than the undiscounted and unescalated cost
estimates. For example, based upon the cost estimate approved by the hearing officer,
the financial assurance amount for Chino could be approximately $189 million.
This amount is based on annual escalation rates of approximately 3.2 percent
for long-term water treatment costs and approximately 3.6 percent for other
costs and discount rates of 5 percent for years one through 12 of the plan and
8 percent for years 13 through 100.

NMMAR requires that financial assurance for
a closeout plan be approved
and put in place before





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MMD can approve the closeout plan. Currently, under
interim financial assurance required under the terms of their NMED closure
permits, Chino and Tyrone have provided approximately $56 million and $58
million of financial assurance, respectively, which is held by NMED. Cobre
also has approximately $2 million of financial assurance in place held jointly
by NMED and MMD. Following NMEDs issuance of the closure permits, and prior
to MMDs approval of the closeout plans, Chino, Tyrone and Cobre will be
required to provide substantial amounts of additional financial assurance to
cover the amounts of the approved cost estimates and may involve material cost
depending on the form of financial assurance provided. Hidalgo currently has
provided financial assurance in the amount of approximately $11 million under
its discharge permit.

In December 1994, Chino Mines Company
entered into an Administrative Order
on Consent (AOC) with NMED. This AOC requires Chino to perform a Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) quality
investigation of environmental impacts and potential risks to human health and
the environment associated with portions of the Chino property affected by
historical mining operations. The remedial investigations began in 1995 and
are still under way, although substantial portions of the remedial
investigations are near completion. While some remediation is expected to be
required, no feasibility studies have yet been completed, and NMED has not yet
issued a record of decision regarding any remediation that may be required
under the AOC. The Companys estimated cost is $14.1 million (two-thirds share
basis). In addition to work under the AOC, Chino is continuing ongoing
projects to place interim caps on inactive tailing ponds to control blowing
dust at an estimated cost of $2.5 million (two-thirds share basis) and to
excavate and remove copper-bearing sediments from an area known as Lake One
for copper recovery in existing leach stockpiles at the mine. The Companys
estimated cost for Lake One is $4.3 million (two-thirds share basis). The
Companys aggregate reserve for its share of liability under the Chino AOC and
for the interim work on the tailing ponds and Lake One is $20.9 million.

At Tyrone, an interim dust control cap has
been placed on a historic
tailing pile. Tyrone is considering implementing additional measures to
address the ponding of storm water that accumulates seasonally on inactive
tailing ponds and to reduce financial assurance requirements. Tyrone currently
is neutralizing the ponded water. Tyrone continues to operate groundwater
corrective action systems under the terms of its NMED discharge permits. The
current amount reserved for these items at Tyrone is $17.5 million.

The discharge permit issued by NMED for
the Hidalgo smelter contains
corrective action requirements for contaminated groundwater near the smelters
closed former wastewater evaporation pond. The evaporation pond has been
closed by construction of a soil cap approved by NMED. Impacted groundwater is pumped from a series of wells,
treated
in a neutralization facility, and discharged to a series of lined impoundments
or to an irrigation system. The discharge permit requires a comprehensive
groundwater study to characterize groundwater at the site. NMED could require
future enhancement of the system based upon the results of the ongoing study.

Primary Molybdenum Segment

Significant Colorado Reclamation Program

Our Climax and Henderson mines in
Colorado are subject to permitting
requirements under the Colorado Mined Land Reclamation Act, which requires
approval of reclamation plans and provisions for financial assurance. These
mines have had approved mined land reclamation plans for several years and have
provided the required financial assurance to the state of Colorado in the
amount of $52.4 million and $10.1 million, for Climax and Henderson,
respectively. As a result of adjustments to the approved cost estimates for
various reasons, the amount of financial assurance requirements can increase or
decrease over time. At December 31, 2002 and 2001, we had accrued closure
costs of approximately $19 million and $18 million, respectively, for our
Colorado operations.

Other Mining

Some portions of our mining operations
located on public lands are subject
to mine plans of operation approved by the federal BLM. BLMs regulations
include financial assurance requirements for reclamation plans required as part
of the approved plans of operation. As a result of recent changes to BLMs
regulations, including more stringent financial assurance
requirements, increases in existing financial assurance amounts held by BLM could be
required. Currently, financial assurance for the Companys operations held by
BLM totals $2.7 million.

The Company is investigating available
options to provide additional
financial assurance and, in some instances, to replace existing financial
assurance. The cost of surety bonds, the traditional source of financial
assurance, has increased significantly over the past year, and many surety
companies are now requiring an increased level of collateral supporting the
bonds such that they no longer are economically prudent. Some surety companies
that issued surety bonds to the Company are seeking to exit the market for
reclamation bonds. The terms and conditions presently available from our
principal surety bond provider for reclamation and other types of long-lived
surety bonds have made this type of financial assurance economically





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impractical. We are working with the impacted state and federal agencies to
put in place acceptable alternative forms of financial assurance in a timely
fashion.

We also are subject to federal and state
laws and regulations pertaining
to plant and mine safety and health conditions. These laws include the
Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act
of 1977. Present and proposed regulations govern worker exposure to a number
of substances and conditions present in work environments. These include dust,
mist, fumes, heat and noise. We are making and will continue to make
expenditures to comply with health and safety laws and regulations.

We estimate that our share of capital
expenditures for programs to comply
with applicable environmental laws and regulations that affect our mining
operations will total approximately $21 million in 2003 and approximately $19
million in 2004; approximately $13 million was spent on such programs in 2002.
We also anticipate making significant capital and other expenditures beyond
2004 for continued compliance with such laws and regulations. In light of the
frequent changes in the laws and regulations and the uncertainty inherent in
this area, we are unable to reasonably estimate the total amount of such
expenditures over the longer term, but it may be material. (Refer to the
discussion of OTHER ENVIRONMENTAL MATTERS.)

We do not expect that additional capital and
operating costs associated
with achieving compliance with the many environmental, health and safety laws
and regulations will have a material adverse affect on our competitive position
relative to other U.S. copper producers. These domestic copper producers are
subject to comparable requirements. However, because copper is an
internationally traded commodity, these costs could significantly affect us in
our efforts to compete globally with those foreign producers not subject to
such stringent requirements.

Ownership of Property

U.S. Mining Operations

In the United States, most of the land
occupied by our copper mines,
concentrators, SX/EW facilities, smelters, refineries, rod mills, and
molybdenum roasters or processing facilities generally is owned by, or is
located on unpatented mining claims owned by, the Company. Certain portions of
our Henderson, Miami, Bagdad, Sierrita, Tyrone, Chino and Cobre operations are
located on government-owned land and are operated under a Mine Plan of
Operations. The Sierrita operation leases property adjacent to its mine upon
which its electrowinning tankhouse facility is located. The current lease
agreement expires in the year 2003 and future alternatives, including extension
of the lease, are being considered. Cyprus Tohono Corporation holds leases for
land, water and business purposes on land owned by the Tohono Oodham Indian
Nation for its operation that is presently on care-and-maintenance status.
Various federal and state permits or leases on government land are held for
purposes incidental to mine operations.

South American Mining

At the Candelaria, Ojos del Salado, El Abra
and Cerro Verde operations in
South America, mine properties and facilities are controlled through mining
concessions under the general mining laws of the relevant country. The
concessions are owned or controlled by the operating companies in which the
Company or its subsidiaries have an ownership interest.

PHELPS DODGE INDUSTRIES

PDI is our manufacturing division comprising
two business segments that
produce engineered products principally for the global energy,
telecommunications, transportation and specialty chemicals sectors. Its
operations are characterized by products with significant market share,
internationally competitive cost and quality, and specialized engineering
capabilities. The two segments are Specialty Chemicals and Wire and Cable. In
December 2000, we announced our intention to explore strategic alternatives,
including restructuring, selective asset sales, commercial arrangements
(including joint ventures) and mergers, for PDI. In May 2001, we terminated
the sales process, noting that the then current economic environment was not
delivering transactions that offered appropriate value to our shareholders.





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Specialty Chemicals Segment

Columbian Chemicals Company and its subsidiaries (Columbian Chemicals or
Columbian), our Specialty Chemicals segment headquartered in Marietta, Georgia,
is an international producer and marketer of carbon blacks. At Columbian
Chemicals, we produce a full range of rubber and industrial carbon blacks in 12
plants worldwide (although our El Dorado, Arkansas, plant is temporarily
closed), with approximately 35 percent of our production in North America and
the remaining 65 percent at facilities in Europe, Asia and South America. Our
rubber carbon blacks improve the tread wear and durability of tires, and extend
the service life of many rubber products such as belts and hoses. Our
industrial carbon blacks are used in such diverse applications as pigmentation
of coatings, inks and plastics; ultraviolet stabilization of plastics; and as
conductive insulation for wire and cable. We also maintain sales offices in 11
countries and make use of distributors worldwide.

Extensive research and development is performed at our technology centers
located at Marietta, Georgia, and Avonmouth, United Kingdom. These technology
centers are responsible for studies specific to both industrial and rubber
applications of carbon black. Carbon black product and process development at
these technology centers are supported by development work at Columbians
plants worldwide.

Beginning in December 2001, Columbian Chemicals curtailed 54,000 metric
tons of annual North American carbon black production at its El Dorado,
Arkansas, plant due to significant over-capacity in the U.S. market caused by
the economic recession. The facility is expected to reopen when economic
conditions improve.

In the second quarter of 2000, we acquired the remaining 40 percent share
in the carbon black manufacturing business of Columbian Tiszai Carbon Ltd. in
Hungary for $19.0 million, bringing our total interest to 100 percent.

In the first quarter of 2000, we acquired an additional 18 percent
ownership in Columbian Carbon Japan, a sales and distribution company serving
the Japanese market, bringing our total ownership interest to 68 percent.

In January 1999, we acquired an 85 percent interest in the Korean carbon
black manufacturing business of Korea Kumho Petrochemical Co., Ltd., for $76.1
million. This business includes a 110,000 metric-ton-per-year manufacturing
plant.

In October 1998, we acquired the Brazilian carbon black manufacturing
business of Copebras S.A., a subsidiary of Minorco, for $220 million. This
manufacturing facility has an annual production capacity of 170,000 metric tons
of carbon black.

In November 1999, our manufacturing facility in Bataan, the Philippines,
was permanently closed as it did not have the economies of scale to compete
profitably with imports from larger regional producers.

Competition and Markets

The principal competitive factors in the various markets in which our
Specialty Chemicals segment competes are product quality, customer service,
price, dependability of supply, delivery lead time, breadth of product line,
and technical service and innovation.

Columbian Chemicals is among the worlds largest producers of carbon
black. Approximately 90 percent of the carbon black it produces is used in
rubber applications, a substantial portion of which is used in the tire
industry. Major tire manufacturers worldwide account for a substantial portion
of our carbon black sales. In addition, we maintain a strong competitive
position in both the mechanical rubber goods market and the industrial carbon
black market based on our commitment to quality, service and technical
innovation. Despite ongoing attempts to substitute carbon black with silica,
reclaimed rubber or other materials, none has been able to match the cost and
performance of carbon black in its principal applications. The closest
successful substitute is a silane-treated silica which has made some in-roads
in the tire market due to its increased wet traction characteristics for
specific applications.

Including Columbian Chemicals, there are a total of five major carbon
black producers in the United States, three in Canada, three in western Europe
and three in South America. There also are many producers in Asia. The carbon
black industry is highly competitive, particularly in the rubber black market.

Raw Materials and Energy Supplies

Carbon black is produced primarily from heavy residual oil, a by-product
of the crude oil refining process. At Columbian Chemicals, we purchase
substantially all of our feedstock at market prices that fluctuate with world
oil prices. Our residual oil feedstock and other raw materials for our
specialty chemicals business are purchased from various suppliers. The cost of
feedstock is a significant factor in the cost of carbon black. To achieve
satisfactory financial results during periods of high and/or increasing oil
prices, we must be able to pass through these high and/or increasing prices to
our customers. We do not believe that the loss of any one supplier would have
a material adverse effect on our financial condition or on the results of our
operations.





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Our specialty chemical operations generally use purchased or internally
generated electricity and natural gas as their principal sources of energy.

Ownership of Property

Columbian Chemicals owns all property other than the leased land at its
Sevalco, Hannover and Korean facilities. This leased land is not material to
our overall operations.

Wire and Cable Segment

The Wire and Cable segment, headquartered in Phoenix, Arizona, consists of
three worldwide product line businesses comprising magnet wire, energy and
telecommunications cables, and specialty conductors.

Magnet wire, the insulated conductor used in most electrical motors, is
manufactured in the United States at plants in Fort Wayne, Indiana, and El
Paso, Texas. We also manufacture magnet wire at wholly owned subsidiaries in
Mureck, Austria, and Monterrey, Mexico. As part of a manufacturing
rationalization program aimed at significant cost reductions, our Laurinburg,
North Carolina, plant was temporarily closed in 2002 and our Hopkinsville,
Kentucky, plant was closed in 2000 and its value was written down by $3.3
million in the second quarter of 2001. The productive assets of our
Hopkinsville, Kentucky, plant were moved to other facilities in the United
States and Mexico. In 2000, a special, pre-tax charge of $5.8 million was
recognized for our wire and cable operations in Austria as a result of the
long-term impact of continuing extremely competitive pricing conditions in
Europe. Those conditions led to a determination that we should assess the
recoverability of our Austrian wire and cable asset values. In addition, we
permanently ceased the relatively small production of magnet wire at our
company in Venezuela in 1999.

Phelps Dodge International manufactures energy and telecommunication
cables for international markets and manufactures products in factories located
in 10 countries. We provide management, marketing assistance, technical
support, and engineering and purchasing services to these companies. Three of
our international wire and cable companies have continuous-cast copper rod
facilities (a fourth facility was closed in 1999), and three of our
international wire and cable companies have continuous-cast aluminum rod
facilities. We have majority interests in companies with production facilities
in seven countries  Brazil, Chile, Costa Rica, Honduras, Thailand, Venezuela
and Zambia. We also have minority interests in companies located in Hong Kong
and Thailand, accounted for on the equity basis, and in companies located in
Greece and India, accounted for on the cost basis.

In December 1997, we acquired a 60 percent interest in the Brazilian
copper and aluminum wire and cable manufacturing business (the Business) of
Alcoa Aluminio, S.A. (Aluminio) for $72 million. At that time, the fair value
of the Business was $120 million. As part of the purchase agreement, Aluminio
was given an optional exit mechanism to sell to the Company all, but not less
than all, of its remaining shares in the Business. The agreement stipulated
that Aluminio could exercise its option between December 31, 2000, and January
1, 2006. Under the terms of the agreement, the exit price would be the greater
of (a) the sum of (i) the aggregate amount of paid in cash by Aluminio to
subscribe to capital increases, plus (ii) $48 million, or (b) the value of
shareholders equity represented by Aluminios shares. In January 2001,
Aluminio gave the Company notice of its intent to exercise the option. As a
result of other commitments by Aluminio under the purchase agreement, the exit
price was renegotiated and the transaction to acquire Aluminios remaining 40
percent interest in the Business closed in March 2001 for $44.8 million. Given
the option price at the time of the transaction was equal to fair value, the
value of the put option was deminimus.

During the second quarter of 2000, we ceased production at two wire and
cable plants in Venezuela due to low forecast plant utilization levels as a
result of significantly reduced infrastructure spending in the Latin America
region. These plant closures resulted in a special, pre-tax loss of $26.1
million. We also ceased production at our majority-owned telephone cable
operation in El Salvador in the fourth quarter of 2000 due to low plant
utilization levels as a result of heightened global competition for
telecommunication cable. The plant closure resulted in a special, pre-tax loss
of $5.5 million. A charge of $7.2 million to miscellaneous income and expense
was recognized to reflect the impairment of our 40 percent equity interest in a
wire and cable operation in the Philippines. The impairment was based upon an
analysis of future cash flows of the operation, continuing economic uncertainty
in the Philippines and the erosion of our strategic and operating influence.

During 1999, we converted a small manufacturing facility in Ecuador to a
distribution center. Also in 1999, we opened a distribution center in
Colombia. In all, we operate distribution centers in nine countries in
addition to the United States  Guatemala, El Salvador, Honduras, Panama,
Puerto Rico, Colombia, Ecuador, Belgium and South Africa. At the end of 1999,
we recognized impairments of our equity basis investment in China as well as an
impairment of our telecommunications business in the Philippines.

We manufacture and market highly engineered conductors of copper and
copper alloy wire electroplated with silver, tin or nickel for sophisticated,
specialty product niches in the aerospace, automotive,





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biomedical, computer and
consumer electronics markets. Those products are manufactured in plants
located in Inman, South Carolina; Trenton, Georgia; and Elizabeth, New Jersey.
As part of the manufacturing rationalization program initiated in 1999, leased
plants in Fairfield and Montville, New Jersey, were closed in 2000, and the
West Caldwell, New Jersey, plant was temporarily closed in 2002. Their
productive capacities were transferred to the remaining facilities.

On September 10, 2002, we announced the temporary closure of two U.S. wire
and cable plants and other actions to improve efficiencies and consolidate
certain wire and cable operations. These temporary closures and internal
changes are expected to reduce our costs and align our business with current
market conditions. The actions included: (i) the temporary closure of the
Laurinburg, North Carolina, magnet wire plant at the end of 2002, with
production being shifted to the El Paso, Texas, and Fort Wayne, Indiana,
facilities; (ii) the temporary closure of the West Caldwell, New Jersey, High
Performance Conductors facility pending recovery of markets served by this
location, with production of certain products relocated to our Inman, South
Carolina, facility; (iii) operational and production support at other High
Performance Conductors facilities being streamlined in order to reduce costs
and increase operating efficiencies; and (iv) the restructuring and
consolidation of certain administrative functions. These actions resulted in
special, pre-tax charges of $23.0 million ($22.2 million after-tax) in the 2002
third quarter and $0.6 million ($0.8 million after-tax) in the 2002 fourth
quarter. Of these amounts, $16.9 million (before and after taxes) was
recognized as asset impairments and $6.7 million ($6.1 million after-tax) was
recognized for severance-related and relocation expenses associated with the
restructuring and temporary closures. The amount of the asset impairment was
determined through an assessment of fair market value, which was based on
independent appraisals, of the existing assets at the wire and cable plants.
We also performed an event-driven impairment test on the goodwill at our wire
and cable plants through a comparison of the carrying value to the respective
fair value (using an estimate of discounted cash flows) and determined that an
additional impairment loss was not required. The restructuring plan includes
the reduction of approximately 300 positions and charges associated with
employee severance and relocation ($3.9 million, of which $0.7 million and $1.9
million was paid in the 2002 third and fourth quarters, respectively) and
pension and other postretirement obligations ($2.8 million).

Competition and Markets

Phelps Dodge is one of the worlds largest manufacturers of magnet wire.
Our plants draw, roll and insulate copper and aluminum wire which is sold as
magnet wire and bare conductors to original equipment manufacturers for use in
electric motors, generators, transformers, televisions, automobiles and a
variety of small electrical appliances. Magnet wire also is sold to electrical
equipment repair shops and smaller original equipment manufacturers through a
network of distributors. We principally compete with two international and two
U.S. magnet wire producers.

Our international energy and telecommunication cable companies primarily
sell products to contractors, distributors, and public and private utilities.
Our products are used in lighting, power distribution, telecommunications and
other electrical applications. Our competitors range from worldwide wire and
cable manufacturers to small local producers.

Our specialty conductors are sold primarily to intermediaries (insulators,
assemblers, subcontractors and distributors). Approximately 40 percent of
these products ultimately are sold to commercial and military aerospace
companies for use in airframes, avionics, space electronics, radar systems and
ground control electronics. Specialty conductors also are used in appliances,
instrumentation, computers, telecommunications, military electronics, medical
equipment and other products. We have two primary U.S. competitors and compete
with three importers in the specialty conductor market; however, in those few
markets where we compete for high volume products, we face competition from
several U.S. fabricators.

Raw Materials and Energy Supplies

The principal raw materials used by our magnet wire manufacturing
operations are copper, aluminum and various chemicals and resins used in the
manufacture of electrical insulating materials. Most of the copper purchased
for our magnet wire operations is from our PDMC division.

The principal raw materials used by our international energy and
telecommunication cable companies are copper, copper alloy, aluminum, aluminum
alloy, copper-clad steel and various electrical insulating materials.

The specialty conductor product line usually is plated with silver, nickel
or tin. With the exception of copper needed in specialty conductors, a
majority of the materials used by these companies is purchased from others. We
do not believe that the loss of any one supplier would have a material adverse
effect on our financial condition or on the results of our operations.





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Most of our wire and cable operations generally use purchased electricity
and natural gas as their principal sources of energy. Our magnet wire
companys principal manufacturing equipment uses natural gas; however, it is
also equipped to burn alternative fuels.

Ownership of Property

We own most of the plants and land on which our wire and cable operations
are located. The exceptions are the leased land and buildings of our magnet
wire facilities in Austria and closed specialty conductor facilities in
Fairfield and Montville, New Jersey. This land is not material to our overall
operations.

Environmental Matters

Federal and state environmental laws and regulations affect many aspects
of our domestic industrial operations. We estimate that capital expenditures
for programs to comply with applicable environmental laws and regulations
within our PDI division will total approximately $8 million in 2003 and
approximately $11 million in 2004; approximately $3 million was spent on such
programs in 2002. We anticipate making significant capital and other
expenditures after 2003 for continued compliance with environmental laws and
regulations.

It is expected that most, and perhaps all, of our domestic carbon black
plants and magnet wire plants are or will become subject to one or more MACT
standards under the federal CAA. These standards do not have immediate
compliance dates; instead they allow two or three years after promulgation to
provide the opportunity to come into compliance or to reduce emissions to avoid
regulation before the compliance date. For example, the carbon black MACT
standard was issued in 2002, and the compliance date for the carbon black MACT
standard is July 2005. Other potentially applicable MACT standards are still
in development. We are in the process of determining applicability and
compliance strategies.

The European Union (EU) has commenced work on the development of Best
Available Technology (BAT) for the carbon black industry. The current BAT
Reference Document (BREF Note) proposes to control sulfur dioxide emissions by
limiting the annual sulfur content in feedstocks to 0.5 percent. This limit,
if adopted, could negatively impact the carbon black industry, including
Columbian. Columbian, through the carbon black industry trade association, is
actively involved in this process. It is expected that it will be
approximately two years before any final action will be taken.

Because of the frequent changes in environmental laws and regulations and
the uncertainty these changes create for us, we are unable to estimate
reasonably the total amount of such expenditures over the longer term, but it
may be material. (Refer to the discussion of OTHER ENVIRONMENTAL MATTERS.)

LABOR MATTERS

Employees at PDMCs Arizona operations, El Paso refinery and rod mill,
Tyrone, Hidalgo smelter, the Norwich and Chicago rod mills, the Henderson mine
in Colorado, the Fort Madison, Iowa, molybdenum processing facility, and some
employees at Chino are not represented by any unions.

Our El Abra mine in Chile had labor agreements that expired on October 30,
2001. Two new three-year agreements, covering approximately 593 employees,
were ratified with effective dates of November 1, 2001, through October 31,
2004. Candelaria has two labor agreements, covering approximately 700
employees, which expired in March 2003. On March 31, 2003, the 556 employees
represented by the Candelaria union elected to go on strike. A labor agreement
was reached earlier with the remaining non-union hourly employees. The mine
will remain in production as negotiations continue with the Candelaria union.
Cerro Verde has a three-year labor agreement, covering approximately 295
employees, that expires December 31, 2003. Our Chino mine in Hurley, New
Mexico, has an agreement covering approximately 447 employees that expired on
November 18, 2002; negotiations are still ongoing in regard to this agreement.
Our molybdenum operations in Stowmarket and Rotterdam have agreements covering
approximately 38 and 50 employees, respectively, that expire (or expired) on
May 31 and March 31, 2003.

In addition, we currently have labor agreements covering most of our U.S.
and international manufacturing division plants. Our specialty chemicals plant
in Trecate, Italy, has an agreement covering 89 employees that expires on
December 31, 2003, and an agreement covering seven employees that expired on
December 31, 2001; negotiations are still ongoing in regard to this agreement.
Our specialty chemicals plant in Hamilton, Ontario, Canada, had an agreement
that expired on September 30, 2002. In March 2003, a new four-year agreement
was reached covering 65 employees. The plant remained fully operational and
staffed by salaried and contract employees during the work stoppage enacted in
November 2002. Our specialty chemicals facilities in Cubatao and Sao Paulo,
Brazil, have agreements covering 211 and 26 employees, respectively, that
expire on October 31, 2003. Our specialty chemicals plant in Bristol, United
Kingdom, has an agreement covering 107 employees that expires on May 8, 2003;
negotiations are expected to begin in April 2003. Our specialty chemicals
plant in Hannover, Germany, has an agreement covering 74 employees that expires
on July 31, 2003. Our spe-





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- 37 -

cialty chemicals plant in Yosu, South
Korea, has a
wage agreement covering 49 employees that expired March 31, 2003; negotiations
are expected to begin during the 2003 second quarter. Our specialty chemicals
plant in Santander, Spain, has an agreement covering 48 employees that expired
on December 31, 2002; negotiations are expected to begin during the 2003 second
quarter. Our specialty chemicals plant in Marshall, West Virginia, has two
agreements covering 60 employees that expire in June 2003. Our specialty
chemicals North Bend plant in Franklin, Louisiana, had an agreement that
expired on February 28, 2003. In February 2003, a new three-year agreement was
reached covering 113 employees.

Our wire plant in Elizabeth, New Jersey, has an agreement covering 45
employees that expired on July 31, 2000; negotiations are still ongoing in
regard to this agreement. Our wire plant in West Caldwell, New Jersey, has an
agreement covering 88 employees that expires in September 2003; this facility
was temporarily closed in December 2002. Our plant in Zambia has an agreement
covering approximately 98 employees that expires in July 2003. Our magnet wire
plant in Monterrey, Mexico, has an agreement covering approximately 143
employees that expired in March 2003; negotiations began in April 2003. Our
magnet wire plant in Fort Wayne, Indiana, has an agreement covering
approximately 210 employees that expires in May 2005. Our magnet wire plant in
Austria has an agreement covering approximately 70 employees that expires in
October 2003. Our wire and cable facilities in Brazil have agreements covering
approximately 279 and 30 employees that expire in September and November 2003,
respectively. Our wire and cable facilities in Venezuela have agreements
covering approximately 80 and 78 employees that expire in March 2004 and
December 2005, respectively. Our wire and cable plant in Chile has an
agreement covering approximately 184 employees that expires in May 2007.

RESEARCH AND DEVELOPMENT

We conduct research and development programs relating to technology for
exploration for minerals, mining and recovery of metals from ores, concentrates
and solutions, smelting and refining of copper, metal processing and product
development. We also conduct research and development programs related to our
carbon products through Columbian Chemicals, and our wire insulating processes
and materials and conductor materials and processes through our Wire and Cable
segment. Expenditures for all of these research and development programs,
together with contributions to industry and government-supported programs,
totaled $26.0 million in 2002, compared with $27.1 million in 2001 and $24.7
million in 2000.

OTHER ENVIRONMENTAL MATTERS

Phelps Dodge or its subsidiaries have been advised by EPA, the U.S. Forest
Service and several state agencies that they may be liable under CERCLA or
similar state laws and regulations for costs of responding to environmental
conditions at a number of sites that have been or are being investigated by
EPA, the U.S. Forest Service or states to determine whether releases of
hazardous substances have occurred and, if so, to develop and implement
remedial actions.

Phelps Dodge has provided reserves for potential environmental obligations
that management considers probable and for which reasonable estimates can be
made. For closed facilities and closed portions of operating facilities with
closure obligations, an environmental liability is considered probable and is
accrued when a closure determination is made and approved by management.
Environmental liabilities attributed to CERCLA or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion, and
we have been associated with the site. Other environmental remediation
liabilities are considered probable based upon specific facts and
circumstances. Liability estimates are based on an evaluation of, among other
factors, currently available facts, existing technology, presently enacted laws
and regulations, Phelps Dodges experience in remediation, other companies
remediation experience, Phelps Dodges status as a potentially responsible
party (PRP), and the ability of other PRPs to pay their allocated portions.
Accordingly, total environmental reserves of $305.9 million and $311.2 million
were recorded as of December 31, 2002 and 2001, respectively. The long-term
portion of these reserves is included in other liabilities and deferred credits
on the consolidated balance sheet and amounted to $261.7 million and $264.3
million at December 31, 2002 and 2001, respectively.

The sites for which we have received a liability claim, a notice of
potential liability or an information request that currently are considered to
be the most significant are the Pinal Creek site near Miami, Arizona; the
Laurel Hill site at Maspeth, New York; the former American Zinc and Chemical
site in Langeloth, Pennsylvania; and the Cyprus Tohono site near Casa Grande,
Arizona.

Pinal Creek Site

The Pinal Creek site was listed under the ADEQ Water Quality Assurance
Revolving Fund program in 1989 for contamination in the shallow alluvial
aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time,
environmental remediation has been performed by the members of the Pinal Creek
Group (PCG), comprising Phelps Dodge Miami, Inc. (a wholly owned subsidiary of
the Company) and





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##### 



- 38 -

two other companies. In 1998, the District Court approved a
Consent Decree between the PCG members and the state of Arizona resolving all
matters related to an enforcement action contemplated by the state of Arizona
against the PCG members with respect to the groundwater matter. The Consent
Decree committed Phelps Dodge Miami, Inc. and the other PCG members to complete
the remediation work outlined in the Consent Decree. That work continues at
this time pursuant to the Consent Decree and consistent with the National
Contingency Plan prepared by EPA under CERCLA.

Phelps Dodge Miami, Inc. and the other members of the PCG are pursuing
contribution litigation against three other parties involved with the site. At
least two of the three defendants now have admitted direct liability as
responsible parties. The case is expected to be assigned a trial date in 2004.
Phelps Dodge Miami, Inc. also asserted claims against certain past insurance
carriers. As of November 2002, all of the carriers have settled or had their
liability adjudicated. One carrier has appealed the judgment against it.

In addition, a dispute between one dissenting PCG member and Phelps Dodge
Miami, Inc. and the other PCG member was filed in Superior Court in 2002. The
litigation seeks a declaratory judgment on the dissenting members contract
liability under the PCG agreement. Trial for this matter is scheduled for
early 2004.

While significant recoveries may be achieved in the contribution
litigation, the Company cannot reasonably estimate the amount and, therefore,
has not taken potential recoveries into consideration in the recorded reserve.

Phelps Dodge Miami, Inc.s share of the planned remediation work has a
cost range for reasonable expected outcomes estimated to be from $117 million
to $219 million, and, as no point within that range is more likely than any
other, the lower end of the range has been reserved as required by generally
accepted accounting principles. Approximately $117 million remained in the
Companys Pinal Creek remediation reserve at December 31, 2002.

Laurel Hill Site

Phelps Dodge Refining Corporation, a subsidiary of the Company, owns the
Laurel Hill property in Maspeth, New York, that formerly was used for
metal-related smelting, refining and manufacturing. All industrial operations
at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into
an Order on Consent with the New York State Department of Environmental
Conservation (NYSDEC) that required the Company to perform, among other things,
a remedial investigation and feasibility study relating to environmental
conditions and remedial options at the Laurel Hill site.

The Companys final feasibility study, which was submitted to NYSDEC in
May 2002, recommended that the Laurel Hill site be remediated by removing
certain hot spots of contaminated soils, capping most of the surface of the
site, installing and operating a groundwater extraction, containment and
treatment system, long-term groundwater monitoring, and implementing
institutional controls concerning future land uses. In June 2002, NYSDEC
issued a Proposed Remedial Action Plan (PRAP) adopting Phelps Dodges remedial
recommendation. NYSDEC has held public meetings concerning its PRAP and issued
a final remedial decision in January 2003 in the form of a Record of Decision.
Phelps Dodge expects to commence implementation of the remedy sometime during
the second or third quarter of 2003. While the Laurel Hill site is under a
contract for sale for $34 million, and the contract vendee has assumed the
obligation of capping the site at a cost of about $5 million, implementing the
remainder of the remedy is expected to cost the Company as much as $16 million.
The Company has reserved the entire estimated cost of $21 million.

In July 2002, Phelps Dodge entered into another Order on Consent with
NYSDEC requiring the Company to conduct a remedial investigation and
feasibility study relating to sediments in Newtown and Maspeth Creeks, which
are located contiguous to the Laurel Hill site. The Company expects to
commence the remedial investigation in mid to late 2003. It cannot be
determined what, if any, remedial action will be required by NYSDEC concerning
the Newtown and Maspeth Creek sediments until the remedial investigation and
feasibility studies are complete.

American Zinc and Chemical Site

In June 1999, Cyprus Amax, now a subsidiary of Phelps Dodge, received an
information request from the Pennsylvania Department of Environmental
Protection (PADEP) regarding the former American Zinc and Chemical (AZC) site
in Langeloth, Pennsylvania. For PADEP, the AZC site consists of a former zinc
smelter facility operated until 1947 by the former American Zinc and Chemical
Company and a contiguous, currently operating molybdenum refinery formerly
owned by the Climax Molybdenum Company, a Cyprus Amax subsidiary. The American
Zinc and Chemical Company, which was dissolved in 1951, also was a subsidiary
of a corporate predecessor to Cyprus Amax.

In discussions with Cyprus Amax in 2001 and early 2002, PADEP informally
indicated that it expects Cyprus Amax to investigate and remediate
environ-





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- 39 -

mental conditions at the AZC site, which predominates at and about the
former zinc smelter facility. Preliminary evaluations of the nature and extent
of environmental conditions at and about the zinc smelter facility indicate
that remediation of the AZC site may range in cost from $18 million to $52
million. While the Company has reserved $20 million for possible remediation
work at the AZC site, which represents the most likely point within the range
of estimates, Cyprus Amax has indicated to PADEP that the Company is not liable
for the actions of its former subsidiary, American Zinc and Chemical Company,
under existing federal and state environmental laws. To date, PADEP has not
responded to Cyprus Amaxs assertion of non-liability.

Cyprus Tohono Site

Cyprus Tohono holds three leases for lands on the Tohono Oodham Indian
Nation. The leased lands include the site of a mining operation, currently on
care-and-maintenance status, comprising an open pit, underground mine workings,
leach and non-leach rock stockpiles, tailing and evaporation ponds, SX/EW
operations, and ancillary facilities.

EPA has started a Preliminary Assessment and Site Investigation of Cyprus
Tohono to evaluate the need to conduct remedial actions under CERCLA. We are
unable to project the remedial action measures, if any, that may be required as
a result of these investigations; however, based upon our best estimate of
remedial actions that Cyprus Tohono may undertake, the Company reserved $11
million for Cyprus Tohono for the CERCLA matter.

Other

In 2002, the Company recognized charges of $14.0 million for environmental
remediation primarily for the Laurel Hill site ($13.5 million) and the
remainder at closed sites, none of which increased or decreased individually
more than $2 million.

At December 31, 2002, the cost range for reasonably possible outcomes for
all reservable environmental remediation sites other than Pinal Creek, Laurel
Hill, AZC and Cyprus Tohono was estimated to be from $119 million to $219
million of which $137 million has been reserved. Work on these sites is
expected to be substantially completed in the next several years, subject to
inherent delays involved in the remediation process.

Phelps Dodge believes certain insurance policies partially cover the
foregoing environmental liabilities; however, some of the insurance carriers
have denied coverage. We presently are negotiating with the carriers over some
of these disputes. Further, Phelps Dodge believes it has other potential
claims for recovery from other third parties, including the United States
Government and other PRPs. Neither insurance recoveries nor other claims or
offsets are recognized unless such offsets are considered probable of
realization. In 2002 and 2001, the Company recognized proceeds from
settlements reached with several insurance companies on historic environmental
liability claims of $34.3 million and $61.8 million, net of fees and expenses,
respectively.

Phelps Dodge has a number of sites that are not the subject of an
environmental reserve because it is not probable that a successful claim will
be made against the Company for those sites, but for which there is a
reasonably possible likelihood of an environmental remediation liability. At
December 31, 2002, the cost range for reasonably possible outcomes for all such
sites was estimated to be from $4 million to $37 million. The liabilities
arising from potential environmental obligations that have not been reserved at
this time may be material to the results of any single quarter or year in the
future. Management, however, believes the liability arising from potential
environmental obligations is not likely to have a material adverse effect on
the Companys liquidity or financial position as such obligations could be
satisfied over a period of years.

Our operations are subject to many environmental laws and regulations in
jurisdictions both in the United States and in other countries in which we do
business. For further discussion of these laws and regulations, refer to PDMC
- Environmental and Other Regulatory Matters and PDI - Environmental Matters.
The estimates given in those discussions of the capital expenditures to comply
with environmental laws and regulations in 2003 and 2004, and the expenditures
in 2002, are separate from the reserves and estimates described above.

The Environmental, Health and Safety Committee of the Board of Directors
comprises five non-employee directors. The Committee met two times in 2002 to
review, among other things, the Companys policies with respect to
environmental, health and safety matters, and the adequacy of managements
programs for implementing those policies. The Committee reports on such
reviews and makes recommendations with respect to those policies to the Board
of Directors and to management.





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##### 



- 40 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



|               |  |                                                           |                                                                 
|-------------- |  | --------------------------------------------------------- | ----------------------------------------------------------------
|               |  | PHELPS DODGE CORPORATION
                    (Registrant)
|               |  |                                                           |                                                                 
|April 23, 2003 |  | By:                                                       | /s/ Ramiro G. Peru                                              
|               |  |                                                           |                                                                 
|               |  |                                                           | Ramiro G. Peru
Senior Vice President
and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



|                                                                                                                                                                                               |  |                                                                                         |  |               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | --------------
|/s/ J. Steven Whisler                                                                                                                                                                          |  | Chairman, President, Chief Executive Officer
and Director
(Principal Executive Officer) |  | April 23, 2003
|                                                                                                                                                                                               |  |                                                                                         |  |               
|J. Steven Whisler                                                                                                                                                                              |  |                                                                                         |  |               
|                                                                                                                                                                                               |  |                                                                                         |  |               
|/s/ Ramiro G. Peru                                                                                                                                                                             |  | Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)         |  | April 23, 2003
|                                                                                                                                                                                               |  |                                                                                         |  |               
|Ramiro G. Peru                                                                                                                                                                                 |  |                                                                                         |  |               
|                                                                                                                                                                                               |  |                                                                                         |  |               
|/s/ Stanton K. Rideout                                                                                                                                                                         |  | Vice President and Controller
(Principal Accounting Officer)                            |  | April 23, 2003
|                                                                                                                                                                                               |  |                                                                                         |  |               
|Stanton K. Rideout                                                                                                                                                                             |  |                                                                                         |  |               
|                                                                                                                                                                                               |  |                                                                                         |  |               
|(Robert N. Burt,
Archie W. Dunham, William A. Franke, Marie L. Knowles, Robert D. Krebs,
Jon C. Madonna, Southwood J. Morcott, Gordon
R. Parker, William J. Post, Jack E. Thompson, Directors) |  | April 23, 2003                                                                         

|    |  |                                                    
|--- |  | ---------------------------------------------------
|By: |  | /s/ Ramiro G. Peru

Ramiro G. Peru
Attorney-in-fact

Certifications

I, J. Steven Whisler, Chairman, President and Chief Executive Officer, certify
that:



|l. |  | I have reviewed this Amendment
No. 2 to the annual report on Form 10-K of Phelps Dodge
Corporation;                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   



---



##### 



- 41 -



|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

April 23, 2003

|                                                                                        
|----------------------------------------------------------------------------------------
|/s/ J. Steven Whisler

J. Steven Whisler
Chairman, President and Chief Executive Officer

I, Ramiro G. Peru, Senior Vice President and Chief Financial Officer, certify
that:

l.     I have
reviewed this Amendment No. 2 to the annual report on Form 10-K of Phelps Dodge
Corporation;



|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### 



- 42 -



| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                      



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

April 23, 2003

|                                                                                    
|------------------------------------------------------------------------------------
|/s/ Ramiro G. Peru

Ramiro G. Peru
Senior Vice President and Chief Financial Officer