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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2003

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

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

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 a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [
  ].

Number of Common Shares outstanding at
October 27, 2003:   89,345,792
shares.



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TABLE OF CONTENTS



|                              |                                                                   |                                                                    |  |  |  |  |  | 
|----------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1. Financial Statements                                     
|                              |                                                                   | STATEMENT OF CONSOLIDATED OPERATIONS                              
|                              |                                                                   | CONSOLIDATED BALANCE SHEET                                        
|                              |                                                                   | CONSOLIDATED STATEMENT OF CASH FLOWS                              
|                              |                                                                   | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY                    
|                              |                                                                   | FINANCIAL DATA BY BUSINESS SEGMENT                                
|                              |                                                                   | NOTES TO CONSOLIDATED FINANCIAL INFORMATION                       
|                              |                                                                   | REVIEW BY INDEPENDENT ACCOUNTANTS                                 
|                              |                                                                   | REPORT OF INDEPENDENT ACCOUNTANTS                                 
|                              | Item 2. Managements Discussion and Analysis                     
|                              |                                                                   | RESULTS OF OPERATIONS                                             
|                              |                                                                   | RESULTS OF PHELPS DODGE MINING COMPANY                            
|                              |                                                                   | RESULTS OF PHELPS DODGE INDUSTRIES                                
|                              |                                                                   | OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
|                              |                                                                   | CHANGES IN FINANCIAL CONDITION                                    
|                              | Item 3. Quantitative and Qualitative Disclosure About Market Risk
|                              | Item 4. Controls and Procedures                                  
|Part II. Other Information   
|                              | Item 1. Legal Proceedings                                        
|                              | Item 6. Exhibits and Reports on Form 8-K                         
|Signatures                   
|Index to Exhibits            
|EX-10.14                     
|EX-11                        
|EX-12                        
|EX-15                        
|EX-31                        
|EX-32                        



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##### Table of Contents



PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2003

Table of Contents

|                              |                                                                   |                                                                    |  |      |    | 
|----------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------ |  | ---- | -- | 
|                              |                                                                   |                                                                    |  | Page
|                              |                                                                   |                                                                    |  |     
|Part I. Financial Information |                                                                   |                                                                    |  |     
|                              | Item 1. Financial Statements (unaudited)                          |                                                                    |  |      |   
|                              |                                                                   | Statement of Consolidated Operations                               |  |      | 1  | 
|                              |                                                                   | Consolidated Balance Sheet                                         |  |      | 2  | 
|                              |                                                                   | Consolidated Statement of Cash Flows                               |  |      | 3  | 
|                              |                                                                   | Consolidated Statement of Shareholders Equity                     |  |      | 4  | 
|                              |                                                                   | Financial Data by Business Segment                                 |  |      | 5  | 
|                              |                                                                   | Notes to Consolidated Financial Information                        |  |      | 7  | 
|                              |                                                                   | Review by Independent Accountants                                  |  |      | 29 | 
|                              |                                                                   | Report of Independent Accountants                                  |  |      | 30 | 
|                              | Item 2. Managements Discussion and Analysis                      |                                                                    |  |      |   
|                              |                                                                   | Results of Operations                                              |  |      | 31 | 
|                              |                                                                   | Results of Phelps Dodge Mining Company                             |  |      | 35 | 
|                              |                                                                   | Results of Phelps Dodge Industries                                 |  |      | 55 | 
|                              |                                                                   | Other Matters Relating to the Statement of Consolidated Operations |  |      | 58 | 
|                              |                                                                   | Changes in Financial Condition                                     |  |      | 61 | 
|                              | Item 3. Quantitative and Qualitative Disclosure About Market Risk |                                                                    |  | 64   |   
|                              | Item 4. Controls and Procedures                                   |                                                                    |  | 64   |   
|Part II. Other Information    |                                                                   |                                                                    |  |     
|                              | Item 1. Legal Proceedings                                         |                                                                    |  | 65   |   
|                              | Item 6. Exhibits and Reports on Form 8-K                          |                                                                    |  | 66   |   
|                              | Signatures                                                        |                                                                    |  | 67   |   
|                              | Index to Exhibits                                                 |                                                                    |  | 67   |   





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-1-

PHELPS DODGE CORPORATION AND SUBSIDIARIES




Part I. Financial Information




Item 1. Financial Statements




STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited; in millions except per share data)

|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | - | ------------- | ----- | ------------- |  | -------------- | ----- | ---- |  | ----------------- | ------- | -------------- |  | ------- | ------- | -
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  | Nine Months Ended
|                                                                                                                                          |                                                                                        |   | Third Quarter |       | September 30,
|                                                                                                                                          |                                                                                        |   |               |       |              
|                                                                                                                                          |                                                                                        |   | 2003          |       | 2002          |  | 2003           |       | 2002
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |     
|                                                                                                                                          |                                                                                        |   |               |       |               |  | (As Restated)* |       |      |  |                   |         | (As Restated)*
|Sales and other operating revenues                                                                                                        |                                                                                        | $ | 1,031.1       |       |               |  | 941.2          |       |      |  | 2,971.3           |         |                |  | 2,826.5 |        
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Operating costs and expenses                                                                                                              |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|                                                                                                                                          | Cost of products sold (exclusive of items shown separately below)                      |   |               | 825.0 |               |  |                | 790.6 |      |  |                   | 2,419.3 |                |  |         | 2,361.0 |  
|                                                                                                                                          | Depreciation, depletion and amortization                                               |   |               | 103.1 |               |  |                | 101.9 |      |  |                   | 311.9   |                |  |         | 307.9   |  
|                                                                                                                                          | Selling and general administrative expense                                             |   |               | 34.6  |               |  |                | 26.8  |      |  |                   | 103.1   |                |  |         | 88.8    |  
|                                                                                                                                          | Exploration and research expense                                                       |   |               | 12.2  |               |  |                | 10.7  |      |  |                   | 34.7    |                |  |         | 28.6    |  
|                                                                                                                                          | Special items and provisions, net (see Note 5)                                         |   |               | 9.4   |               |  |                | 23.2  |      |  |                   | 9.6     |                |  |         | 49.7    |  
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|                                                                                                                                          |                                                                                        |   | 984.3         |       |               |  | 953.2          |       |      |  | 2,878.6           |         |                |  | 2,836.0 |        
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Operating income (loss)                                                                                                                   |                                                                                        |   | 46.8          |       |               |  | (12.0          | )     |      |  | 92.7              |         |                |  | (9.5    | )      
|                                                                                                                                          | Interest expense                                                                       |   |               | (36.9 | )             |  |                | (41.4 | )    |  |                   | (109.9  | )              |  |         | (143.4  | )
|                                                                                                                                          | Capitalized interest                                                                   |   |               | 0.2   |               |  |                |      |      |  |                   | 0.4     |                |  |         |        |  
|                                                                                                                                          | Early debt extinguishment costs (see Note 6)                                           |   |               |      |               |  |                | (31.3 | )    |  |                   |        |                |  |         | (31.3   | )
|                                                                                                                                          | Miscellaneous income (expense), net                                                    |   |               | 2.1   |               |  |                | 0.9   |      |  |                   | 15.3    |                |  |         | 2.6     |  
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Income (loss) before taxes, minority interests, equity in net earnings of
affiliated companies and cumulative effect of accounting change |                                                                                        |   | 12.2          |       |               |  | (83.8          | )     |      |  | (1.5              | )       |                |  | (181.6  | )      
|                                                                                                                                          | Benefit (provision) for taxes on income (see Note 10)                                  |   |               | (12.0 | )             |  |                | 31.3  |      |  |                   | (33.9   | )              |  |         | 95.8    |  
|                                                                                                                                          | Minority interests in consolidated subsidiaries                                        |   |               | (1.1  | )             |  |                | (2.0  | )    |  |                   | (5.1    | )              |  |         | (6.0    | )
|                                                                                                                                          | Equity in net earnings of affiliated companies                                         |   |               | 0.6   |               |  |                | 0.8   |      |  |                   | 1.6     |                |  |         | 1.9     |  
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Loss before cumulative effect of accounting change                                                                                        |                                                                                        |   | (0.3          | )     |               |  | (53.7          | )     |      |  | (38.9             | )       |                |  | (89.9   | )      
|                                                                                                                                          | Cumulative effect of accounting change, net of tax of $(1.3) in 2003 and $10.1 in 2002 |   |               |      |               |  |                |      |      |  |                   | 8.4     |                |  |         | (22.9   | )
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Net loss                                                                                                                                  |                                                                                        | $ | (0.3          | )     |               |  | (53.7          | )     |      |  | (30.5             | )       |                |  | (112.8  | )      
|                                                                                                                                          | Preferred stock dividends                                                              |   |               | (3.3  | )             |  |                | (3.3  | )    |  |                   | (10.1   | )              |  |         | (5.7    | )
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Loss applicable to common shares                                                                                                          |                                                                                        | $ | (3.6          | )     |               |  | (57.0          | )     |      |  | (40.6             | )       |                |  | (118.5  | )      
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Average number of common shares outstanding  basic                                                                                       |                                                                                        |   | 88.7          |       |               |  | 88.6           |       |      |  | 88.6              |         |                |  | 82.6    |        
|Basic loss per common share before cumulative effect of
accounting change                                                                 |                                                                                        | $ | (0.04         | )     |               |  | (0.64          | )     |      |  | (0.55             | )       |                |  | (1.15   | )      
|                                                                                                                                          | Cumulative effect of accounting change                                                 |   |               |      |               |  |                |      |      |  |                   | 0.09    |                |  |         | (0.28   | )
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Basic loss per common share                                                                                                               |                                                                                        | $ | (0.04         | )     |               |  | (0.64          | )     |      |  | (0.46             | )       |                |  | (1.43   | )      
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Average number of common shares outstanding  diluted**                                                                                   |                                                                                        |   | 88.7          |       |               |  | 88.6           |       |      |  | 88.6              |         |                |  | 82.6    |        
|Diluted loss per common share before cumulative effect of
accounting change                                                               |                                                                                        | $ | (0.04         | )     |               |  | (0.64          | )     |      |  | (0.55             | )       |                |  | (1.15   | )      
|                                                                                                                                          | Cumulative effect of accounting change                                                 |   |               |      |               |  |                |      |      |  |                   | 0.09    |                |  |         | (0.28   | )
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        
|Diluted loss per common share**                                                                                                           |                                                                                        | $ | (0.04         | )     |               |  | (0.64          | )     |      |  | (0.46             | )       |                |  | (1.43   | )      
|                                                                                                                                          |                                                                                        |   |               |       |               |  |                |       |      |  |                   |         |                |  |         |        



|*  |  | Refer to Note 2 to Consolidated Financial Information.                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Diluted loss per share would have been anti-dilutive if based on fully diluted shares adjusted to reflect the assumed conversion of mandatory convertible preferred
shares to common shares and stock option exercises.

See Notes to Consolidated Financial Information





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-2-




CONSOLIDATED BALANCE SHEET
(Unaudited; in millions except per share prices)

|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |         |       |         | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------- | ------- | ------------- | ------- | ------------ | ------- | ----- | ------- | 
|                                                |                                                                                                                |                                                                                        |                     |         | September 30, |         | December 31,
|                                                |                                                                                                                |                                                                                        |                     |         | 2003          |         | 2002        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |             
|Assets                                          |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                | Current assets:                                                                                                |                                                                                        |                     |         |               |         |              |         |      
|                                                |                                                                                                                | Cash and cash equivalents                                                              |                     | $       | 438.3         |         |              |         | 349.8 |        
|                                                |                                                                                                                | Accounts receivable, less allowance for doubtful
accounts (2003 - $15.2; 2002 - $14.1) |                     |         | 480.6         |         |              |         | 391.1 |        
|                                                |                                                                                                                | Mill and leach stockpiles                                                              |                     |         | 26.0          |         |              |         | 48.9  |        
|                                                |                                                                                                                | Inventories                                                                            |                     |         | 378.6         |         |              |         | 398.5 |        
|                                                |                                                                                                                | Supplies                                                                               |                     |         | 142.5         |         |              |         | 142.8 |        
|                                                |                                                                                                                | Prepaid expenses and other current
assets                                              |                     |         | 23.6          |         |              |         | 26.5  |        
|                                                |                                                                                                                | Deferred income taxes                                                                  |                     |         | 57.5          |         |              |         | 70.6  |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                |                                                                                                                |                                                                                        | Current assets      |         |               | 1,547.1 |              |         |       | 1,428.2 | 
|                                                | Investments and long-term receivables                                                                          |                                                                                        |                     | 142.7   |               |         |              | 132.3   |      
|                                                | Property, plant and equipment, net (see Note 3)                                                                |                                                                                        |                     | 4,677.8 |               |         |              | 4,813.7 |      
|                                                | Long-term mill and leach stockpiles                                                                            |                                                                                        |                     | 79.6    |               |         |              | 64.3    |      
|                                                | Deferred income taxes                                                                                          |                                                                                        |                     | 7.7     |               |         |              | 11.0    |      
|                                                | Goodwill                                                                                                       |                                                                                        |                     | 99.0    |               |         |              | 90.7    |      
|                                                | Intangible assets (see Note 3)                                                                                 |                                                                                        |                     | 327.8   |               |         |              | 345.9   |      
|                                                | Other assets and deferred charges                                                                              |                                                                                        |                     | 117.9   |               |         |              | 142.9   |      
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                |                                                                                                                | $                                                                                      | 6,999.6             |         |               |         | 7,029.0      |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|Liabilities                                     |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                | Current liabilities:                                                                                           |                                                                                        |                     |         |               |         |              |         |      
|                                                |                                                                                                                | Short-term debt                                                                        |                     | $       | 48.5          |         |              |         | 35.2  |        
|                                                |                                                                                                                | Current portion of long-term debt                                                      |                     |         | 124.4         |         |              |         | 127.0 |        
|                                                |                                                                                                                | Accounts payable and accrued expenses                                                  |                     |         | 610.2         |         |              |         | 609.1 |        
|                                                |                                                                                                                | Dividends payable                                                                      |                     |         | 3.3           |         |              |         | 3.4   |        
|                                                |                                                                                                                | Accrued income taxes                                                                   |                     |         | 28.6          |         |              |         | 9.4   |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                |                                                                                                                |                                                                                        | Current liabilities |         |               | 815.0   |              |         |       | 784.1   | 
|                                                | Long-term debt                                                                                                 |                                                                                        |                     | 1,847.8 |               |         |              | 1,948.4 |      
|                                                | Deferred income taxes                                                                                          |                                                                                        |                     | 420.1   |               |         |              | 430.8   |      
|                                                | Other liabilities and deferred credits                                                                         |                                                                                        |                     | 1,010.0 |               |         |              | 986.8   |      
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                |                                                                                                                |                                                                                        | 4,092.9             |         |               |         | 4,150.1      |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|Minority interests in consolidated subsidiaries |                                                                                                                |                                                                                        | 74.0                |         |               |         | 65.3         |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |         |       |        
|Shareholders equity                            |                                                                                                                |                                                                                        |                     |         |               |         |              |        
|                                                | Common shares, par value $6.25; 200.0 shares authorized;
89.3 outstanding in 2003 and 88.9 outstanding in 2002 |                                                                                        |                     | 557.8   |               |         |              | 555.6   |      
|                                                | Cumulative preferred shares, par value $1.00; 6.0 shares authorized;
2.0 outstanding in 2003 and 2002          |                                                                                        |                     | 2.0     |               |         |              | 2.0     |      
|                                                | Capital in excess of par value                                                                                 |                                                                                        |                     | 1,562.2 |               |         |              | 1,552.1 |      
|                                                | Retained earnings                                                                                              |                                                                                        |                     | 1,132.7 |               |         |              | 1,173.3 |      
|                                                | Accumulated other comprehensive loss                                                                           |                                                                                        |                     | (410.7  | )             |         |              | (458.5  | )    
|                                                | Other                                                                                                          |                                                                                        |                     | (11.3   | )             |         |              | (10.9   | )    
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |         |       |        
|                                                |                                                                                                                |                                                                                        | 2,832.7             |         |               |         | 2,813.6      |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |         |       |        
|                                                |                                                                                                                | $                                                                                      | 6,999.6             |         |               |         | 7,029.0      |        
|                                                |                                                                                                                |                                                                                        |                     |         |               |         |              |        

See Notes to Consolidated Financial Information





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-3-




CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)

|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |        |                |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------------ | ------ | ----------------- | ----- | ----- | ------ | -------------- | ------ | -
|                                                 |                                                                                 |                                            |                                                        |        | Nine Months Ended
|                                                 |                                                                                 |                                            |                                                        |        | September 30,    
|                                                 |                                                                                 |                                            |                                                        |        |                  
|                                                 |                                                                                 |                                            |                                                        |        | 2003              |       | 2002 
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |      
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |        | (As Restated)*
|Operating activities                             |                                                                                 |                                            |                                                        |        |                   |       |       |       
|                                                 | Net loss                                                                        |                                            | $                                                      | (30.5  | )                 |       |       | (112.8 | )             
|                                                 | Adjustments to reconcile net loss to net cash
provided by operating activities: |                                            |                                                        |        |                   |       |       |        |               
|                                                 |                                                                                 | Depreciation, depletion and amortization   |                                                        |        | 311.9             |       |       |        | 307.9          |       
|                                                 |                                                                                 | Deferred income taxes                      |                                                        |        | 3.9               |       |       |        | (10.9          | )     
|                                                 |                                                                                 | Equity earnings, net of dividends received |                                                        |        |                  |       |       |        | 1.2            |       
|                                                 |                                                                                 | Special items and provisions               |                                                        |        | 3.2               |       |       |        | 50.9           |       
|                                                 |                                                                                 | Early debt extinguishment costs            |                                                        |        |                  |       |       |        | 31.3           |       
|                                                 |                                                                                 | Cumulative effect of accounting change     |                                                        |        | (9.7              | )     |       |        | 33.0           |       
|                                                 |                                                                                 | Changes in current assets and liabilities: |                                                        |        |                   |       |       |        |                |       
|                                                 |                                                                                 |                                            | Accounts receivable                                    |        |                   | (74.4 | )     |        |                | 0.1    |  
|                                                 |                                                                                 |                                            | Proceeds (repayments) from sale of accounts receivable |        |                   | (4.5  | )     |        |                | (14.4  | )
|                                                 |                                                                                 |                                            | Mill and leach stockpiles                              |        |                   | 22.9  |       |        |                | 6.7    |  
|                                                 |                                                                                 |                                            | Inventories                                            |        |                   | 27.5  |       |        |                | 68.2   |  
|                                                 |                                                                                 |                                            | Supplies                                               |        |                   | 1.5   |       |        |                | 1.3    |  
|                                                 |                                                                                 |                                            | Prepaid expenses                                       |        |                   | (2.2  | )     |        |                | (7.0   | )
|                                                 |                                                                                 |                                            | Interest payable                                       |        |                   | 29.0  |       |        |                | 16.8   |  
|                                                 |                                                                                 |                                            | Other accounts payable                                 |        |                   | 15.9  |       |        |                | (32.2  | )
|                                                 |                                                                                 |                                            | Accrued income taxes                                   |        |                   | 20.4  |       |        |                | 3.2    |  
|                                                 |                                                                                 |                                            | Other accrued expenses                                 |        |                   | (55.5 | )     |        |                | (10.1  | )
|                                                 |                                                                                 | Other adjustments, net                     |                                                        |        | (14.2             | )     |       |        | (31.9          | )     
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|                                                 |                                                                                 |                                            | Net cash provided by operating activities              |        |                   | 245.2 |       |        |                | 301.3  |  
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|Investing activities                             |                                                                                 |                                            |                                                        |        |                   |       |       |       
|                                                 | Capital outlays                                                                 |                                            |                                                        | (105.5 | )                 |       |       | (86.5  | )             
|                                                 | Capitalized interest                                                            |                                            |                                                        | (0.4   | )                 |       |       |       |               
|                                                 | Investment in subsidiaries, net of cash received                                |                                            |                                                        | (0.8   | )                 |       |       | (2.0   | )             
|                                                 | Proceeds from asset dispositions                                                |                                            |                                                        | 15.1   |                   |       |       | 34.7   |               
|                                                 | Other investing, net                                                            |                                            |                                                        | (4.2   | )                 |       |       | (33.6  | )             
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|                                                 |                                                                                 |                                            | Net cash used in investing activities                  |        |                   | (95.8 | )     |        |                | (87.4  | )
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|Financing activities                             |                                                                                 |                                            |                                                        |        |                   |       |       |       
|                                                 | Proceeds from issuance of debt                                                  |                                            |                                                        | 9.5    |                   |       |       | 21.8   |               
|                                                 | Payment of debt                                                                 |                                            |                                                        | (102.7 | )                 |       |       | (742.2 | )             
|                                                 | Preferred dividends                                                             |                                            |                                                        | (10.1  | )                 |       |       | (2.4   | )             
|                                                 | Issuance of shares                                                              |                                            |                                                        | 8.6    |                   |       |       | 592.2  |               
|                                                 | Other financing, net                                                            |                                            |                                                        | 33.8   |                   |       |       | (32.8  | )             
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|                                                 |                                                                                 |                                            | Net cash used in financing activities                  |        |                   | (60.9 | )     |        |                | (163.4 | )
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|Increase in cash and cash equivalents            |                                                                                 |                                            | 88.5                                                   |        |                   |       | 50.5  |       
|Cash and cash equivalents at beginning of period |                                                                                 |                                            | 349.8                                                  |        |                   |       | 386.9 |       
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       
|Cash and cash equivalents at end of period       |                                                                                 | $                                          | 438.3                                                  |        |                   |       | 437.4 |       
|                                                 |                                                                                 |                                            |                                                        |        |                   |       |       |       

|* |  | Refer to Note 2 to Consolidated Financial Information.
|- |  | ------------------------------------------------------

See Notes to Consolidated Financial Information





---



##### Table of Contents



-4-




CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited; in millions)

|                              |                                         |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |       |       |      |  
|----------------------------- | --------------------------------------- | ---------------------------------------------- | ---------------------------------- | --- | ------------- | - | ---------------- | --- | ---------- |  | ------ |  | --------- | - | -------- |  | ------------- | - | ------- | --- | ------ | - | ------------- | ----- | ----- | - | ------ | - |  | ---- | ----- | ---- | - | - | ------- | ----- | ----- | ---- | -
|                              |                                         |                                                |                                    |     | Common Shares |   | Preferred Shares |     |            |  |        |  |           |   |          |  | Accumulated   |   |         |     |        |   |               |       |      
|                              |                                         |                                                |                                    |     |               |   |                  |     | Capital in |  |        |  |           |   | Other    |  |               |   |         |     |        |   |              
|                              |                                         |                                                |                                    |     | Number        |   | At Par           |     | Number     |  | At Par |  | Excess of |   | Retained |  | Comprehensive |   |         |     |        |   | Shareholders
|                              |                                         |                                                |                                    |     | of Shares     |   | Value            |     | of Shares  |  | Value  |  | Par Value |   | Earnings |  | Income (Loss) |   | Other   |     | Equity
|                              |                                         |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |       
|Balance at December 31, 2002  |                                         |                                                | 88.9                               |     |               | $ | 555.6            |     |            |  | 2.0    |  |           | $ | 2.0      |  |               | $ | 1,552.1 |     |        | $ | 1,173.3       |       |       | $ | (458.5 | ) |  | $    | (10.9 | )    |   | $ | 2,813.6 |      
|                              | Stock options exercised                 |                                                |                                    | 0.3 |               |   |                  | 1.6 |            |  |        |  |           |   |          |  |               |   |         | 7.3 |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         | 8.9   |      
|                              | Restricted shares issued/cancelled, net |                                                |                                    | 0.1 |               |   |                  | 0.6 |            |  |        |  |           |   |          |  |               |   |         | 2.8 |        |   |               |       |       |   |        |   |  |      |       | (0.4 | ) |   |         | 3.0   |      
|                              | Dividends on preferred shares           |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               | (10.1 | )     |   |        |   |  |      |       |      |   |   |         | (10.1 | )    
|                              | Comprehensive income (loss):            |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |       |      
|                              |                                         | Net loss                                       |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       | (30.5 | ) |        |   |  |      |       |      |   |   |         |       | (30.5 | )   
|                              |                                         | Other comprehensive income (loss), net of tax: |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |       |       |     
|                              |                                         |                                                | Translation adjustment             |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  | 42.9 |       |      |   |   |         |       |       | 42.9 |  
|                              |                                         |                                                | Net gain on derivative instruments |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  | 3.9  |       |      |   |   |         |       |       | 3.9  |  
|                              |                                         |                                                | Other investment adjustments       |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  | (0.1 | )     |      |   |   |         |       |       | (0.1 | )
|                              |                                         |                                                | Unrealized gains on securities     |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  | 1.1  |       |      |   |   |         |       |       | 1.1  |  
|                              |                                         |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |      
|                              |                                         |                                                | Other comprehensive income         |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  | 47.8 |       |      |   |   |         |       |       | 47.8 |  
|                              |                                         |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |      
|                              |                                         | Comprehensive income                           |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |       | 17.3  |     
|                              |                                         |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |      
|Balance at September 30, 2003 |                                         |                                                | 89.3                               |     |               | $ | 557.8            |     |            |  | 2.0    |  |           | $ | 2.0      |  |               | $ | 1,562.2 |     |        | $ | 1,132.7       |       |       | $ | (410.7 | ) |  | $    | (11.3 | )    |   | $ | 2,832.7 |      
|                              |                                         |                                                |                                    |     |               |   |                  |     |            |  |        |  |           |   |          |  |               |   |         |     |        |   |               |       |       |   |        |   |  |      |       |      |   |   |         |      

See Notes to Consolidated Financial Information



---



##### Table of Contents



-5-

FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)

|                                                            |                        |  |            |       |                      |  |         |       |        |  |        |     |            |  |       |      |         |  |            |      |       |  |       |      |  |  |         |      |  |  |       |      |  |  |       |       | 
|----------------------------------------------------------- | ---------------------- |  | ---------- | ----- | -------------------- |  | ------- | ----- | ------ |  | ------ | --- | ---------- |  | ----- | ---- | ------- |  | ---------- | ---- | ----- |  | ----- | ---- |  |  | ------- | ---- |  |  | ----- | ---- |  |  | ----- | ----- | 
|                                                            |                        |  | U.S. Mines |       | South American Mines |  |         |       |       
|                                                            |                        |  |            |       |                      |  |         |       |       
|                                                            |                        |  |            |       |                      |  | Bagdad/ |       | Miami/ |  | Chino/ |     |            |  |       |      |         |  |            |      | Cerro |  |       |      |  |  | Primary
|                                                            |                        |  | Morenci    |       | Sierrita             |  | Bisbee  |       | Cobre  |  | Tyrone |     | Candelaria |  | Verde |      | El Abra |  | Molybdenum
|                                                            |                        |  |            |       |                      |  |         |       |        |  |        |     |            |  |       |      |         |  |           
|Third Quarter 2003                                          |                        |  |            |       |                      |  |         |       |        |  |        |     |            |  |       |      |         |  |            |      |       |  |       |      |  |  |         |      |  |  |       |      |  |  |       |      
|Sales and other operating revenues:                         |                        |  |            |       |                      |  |         |       |        |  |        |     |            |  |       |      |         |  |            |      |       |  |       |      |  |  |         |      |  |  |       |      |  |  |       |      
|                                                            | Unaffiliated customers |  |            |      |                      |  |         |      |        |  |        |    |            |  |       |     |         |  |            |     |       |  |       | 40.6 |  |  |         | 10.5 |  |  |       | 31.3 |  |  |       | 101.0 | 
|                                                            | Intersegment           |  |            | 150.0 |                      |  |         | 119.8 |        |  |        | 7.9 |            |  |       | 10.6 |         |  |            | 21.9 |       |  |       | 35.2 |  |  |         | 29.0 |  |  |       | 22.5 |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 18.4       |       |                      |  | 8.1     |       |        |  | 2.0    |     |            |  | 2.1   |      |         |  | 3.2        |      |       |  | 10.3  |      |  |  | 7.2     |      |  |  | 17.6  |      |  |  | 5.6   |      
|Operating income (loss) before special
items and provisions |                        |  | 20.9       |       |                      |  | 23.7    |       |        |  | (0.7   | )   |            |  | (3.6  | )    |         |  | (5.0       | )    |       |  | 22.4  |      |  |  | 10.6    |      |  |  | 7.7   |      |  |  | (0.4  | )    
|Special items and provisions                                |                        |  | (1.1       | )     |                      |  |        |       |        |  |       |     |            |  | (1.3  | )    |         |  | (0.5       | )    |       |  |      |      |  |  |        |      |  |  |      |      |  |  |      |      
|Operating income (loss)                                     |                        |  | 19.8       |       |                      |  | 23.7    |       |        |  | (0.7   | )   |            |  | (4.9  | )    |         |  | (5.5       | )    |       |  | 22.4  |      |  |  | 10.6    |      |  |  | 7.7   |      |  |  | (0.4  | )    
|Assets at September 30                                      |                        |  | 1,028.6    |       |                      |  | 743.0   |       |        |  | 120.3  |     |            |  | 300.9 |      |         |  | 156.3      |      |       |  | 665.6 |      |  |  | 421.0   |      |  |  | 536.8 |      |  |  | 788.7 |      
|Expenditures for segment assets                             |                        |  | 3.2        |       |                      |  | 1.6     |       |        |  | 0.1    |     |            |  | 0.6   |      |         |  | 0.8        |      |       |  | 0.9   |      |  |  | 1.1     |      |  |  | (0.9  | )    |  |  | 3.7   |      
|                                                           
|Third Quarter 2002 (as restated)                            |                        |  |            |       |                      |  |         |       |        |  |        |     |            |  |       |      |         |  |            |      |       |  |       |      |  |  |         |      |  |  |       |      |  |  |       |      
|Sales and other operating revenues:                         |                        |  |            |       |                      |  |         |       |        |  |        |     |            |  |       |      |         |  |            |      |       |  |       |      |  |  |         |      |  |  |       |      |  |  |       |      
|                                                            | Unaffiliated customers |  |            |      |                      |  |         |      |        |  |        |    |            |  |       | 0.1  |         |  |            |     |       |  |       | 31.9 |  |  |         | 9.0  |  |  |       | 39.4 |  |  |       | 81.6  | 
|                                                            | Intersegment           |  |            | 129.2 |                      |  |         | 105.6 |        |  |        | 7.9 |            |  |       | 12.2 |         |  |            | 26.7 |       |  |       | 26.6 |  |  |         | 22.8 |  |  |       | 19.8 |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 20.1       |       |                      |  | 6.8     |       |        |  | 1.3    |     |            |  | 3.2   |      |         |  | 3.1        |      |       |  | 9.4   |      |  |  | 7.8     |      |  |  | 14.9  |      |  |  | 6.4   |      
|Operating income (loss) before special
items and provisions |                        |  | 1.2        |       |                      |  | 8.7     |       |        |  | (3.6   | )   |            |  | 0.4   |      |         |  | 0.9        |      |       |  | 7.7   |      |  |  | 4.6     |      |  |  | (5.4  | )    |  |  | 10.7  |      
|Special items and provisions                                |                        |  | (0.5       | )     |                      |  |        |       |        |  | (2.3   | )   |            |  | (2.5  | )    |         |  |           |      |       |  |      |      |  |  |        |      |  |  |      |      |  |  |      |      
|Operating income (loss)                                     |                        |  | 0.7        |       |                      |  | 8.7     |       |        |  | (5.9   | )   |            |  | (2.1  | )    |         |  | 0.9        |      |       |  | 7.7   |      |  |  | 4.6     |      |  |  | (5.4  | )    |  |  | 10.7  |      
|Assets at September 30                                      |                        |  | 1,099.4    |       |                      |  | 752.3   |       |        |  | 120.4  |     |            |  | 402.2 |      |         |  | 148.7      |      |       |  | 662.7 |      |  |  | 451.8   |      |  |  | 528.0 |      |  |  | 792.5 |      
|Expenditures for segment assets                             |                        |  | 2.5        |       |                      |  | 13.5    |       |        |  | 0.1    |     |            |  | 1.3   |      |         |  | 0.1        |      |       |  | 0.8   |      |  |  | 1.2     |      |  |  | 1.2   |      |  |  | 2.4   |      

|                                                            |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |       |   |  |         |         | 
|----------------------------------------------------------- | ---------------------- |  | ----------- | ----- | ------ |  | ------- | ---- | -------- |  | --------- | ------ | ------ |  | -------- | ----- | ------- |  | ------ | ----- |  |  | ----- | ----- |  |  | ------- | ----- |  |  | ---------- | ----- | - |  | ------- | ------- | 
|                                                            |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  |         |       |  |  | Corporate, |       |   |  |        
|                                                            |                        |  | Manufactur- |       |        |  |         |      | PDMC     |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  | Other & |       |  |  |           
|                                                            |                        |  | ing and     |       | Other  |  | Elimi-  |      | PDMC     |  | Specialty |        | Wire & |  | PDI      |       | Elimi-  |  |        |       | 
|                                                            |                        |  | Sales       |       | Mining |  | nations |      | Subtotal |  | Chemicals |        | Cable  |  | Subtotal |       | nations |  | Totals
|                                                            |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |       
|Third Quarter 2003                                          |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |       |   |  |         |        
|Sales and other operating revenues:                         |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |       |   |  |         |        
|                                                            | Unaffiliated customers |  |             | 514.7 |        |  |         | 6.0  |          |  |           |       |        |  |          | 704.1 |         |  |        | 152.0 |  |  |       | 175.0 |  |  |         | 327.0 |  |  |            |      |   |  |         | 1,031.1 | 
|                                                            | Intersegment           |  |             | 80.4  |        |  |         | 17.8 |          |  |           | (463.5 | )      |  |          | 31.6  |         |  |        |      |  |  |       | 0.1   |  |  |         | 0.1   |  |  |            | (31.7 | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 4.4         |       |        |  | 2.0     |      |          |  |          |        |        |  | 80.9     |       |         |  | 11.4   |       |  |  | 8.9   |       |  |  | 20.3    |       |  |  | 1.9        |       |   |  | 103.1   |        
|Operating income (loss) before special
items and provisions |                        |  | 6.2         |       |        |  | (17.2   | )    |          |  |          |        |        |  | 64.6     |       |         |  | 8.4    |       |  |  | 5.4   |       |  |  | 13.8    |       |  |  | (22.2      | )     |   |  | 56.2    |        
|Special items and provisions                                |                        |  | (0.1        | )     |        |  | (2.0    | )    |          |  |          |        |        |  | (5.0     | )     |         |  |       |       |  |  | 0.4   |       |  |  | 0.4     |       |  |  | (4.8       | )     |   |  | (9.4    | )      
|Operating income (loss)                                     |                        |  | 6.1         |       |        |  | (19.2   | )    |          |  |          |        |        |  | 59.6     |       |         |  | 8.4    |       |  |  | 5.8   |       |  |  | 14.2    |       |  |  | (27.0      | )     |   |  | 46.8    |        
|Assets at September 30                                      |                        |  | 493.2       |       |        |  | 1,486.0 |      |          |  | (1,607.1  | )      |        |  | 5,133.3  |       |         |  | 745.9  |       |  |  | 532.0 |       |  |  | 1,277.9 |       |  |  | 588.4      |       |   |  | 6,999.6 |        
|Expenditures for segment assets                             |                        |  | 3.2         |       |        |  | 1.6     |      |          |  |          |        |        |  | 15.9     |       |         |  | 7.6    |       |  |  | 3.6   |       |  |  | 11.2    |       |  |  | 1.9        |       |   |  | 29.0    |        
|                                                           
|Third Quarter 2002 (as restated)                            |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |       |   |  |         |        
|Sales and other operating revenues:                         |                        |  |             |       |        |  |         |      |          |  |           |        |        |  |          |       |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |       |   |  |         |        
|                                                            | Unaffiliated customers |  |             | 460.8 |        |  |         | 6.5  |          |  |           |       |        |  |          | 629.3 |         |  |        | 138.5 |  |  |       | 173.4 |  |  |         | 311.9 |  |  |            |      |   |  |         | 941.2   | 
|                                                            | Intersegment           |  |             | 98.0  |        |  |         | 13.4 |          |  |           | (428.6 | )      |  |          | 33.6  |         |  |        |      |  |  |       | 0.1   |  |  |         | 0.1   |  |  |            | (33.7 | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 6.1         |       |        |  | 0.6     |      |          |  |          |        |        |  | 79.7     |       |         |  | 10.1   |       |  |  | 10.1  |       |  |  | 20.2    |       |  |  | 2.0        |       |   |  | 101.9   |        
|Operating income (loss) before special
items and provisions |                        |  | 1.2         |       |        |  | (12.6   | )    |          |  |          |        |        |  | 13.8     |       |         |  | 11.0   |       |  |  | 3.4   |       |  |  | 14.4    |       |  |  | (17.0      | )     |   |  | 11.2    |        
|Special items and provisions                                |                        |  | 0.7         |       |        |  | (3.5    | )    |          |  |          |        |        |  | (8.1     | )     |         |  | 1.1    |       |  |  | (22.5 | )     |  |  | (21.4   | )     |  |  | 6.3        |       |   |  | (23.2   | )      
|Operating income (loss)                                     |                        |  | 1.9         |       |        |  | (16.1   | )    |          |  |          |        |        |  | 5.7      |       |         |  | 12.1   |       |  |  | (19.1 | )     |  |  | (7.0    | )     |  |  | (10.7      | )     |   |  | (12.0   | )      
|Assets at September 30                                      |                        |  | 513.1       |       |        |  | 1,718.8 |      |          |  | (1,813.2  | )      |        |  | 5,376.7  |       |         |  | 652.2  |       |  |  | 525.8 |       |  |  | 1,178.0 |       |  |  | 744.5      |       |   |  | 7,299.2 |        
|Expenditures for segment assets                             |                        |  | 1.7         |       |        |  | 2.4     |      |          |  |          |        |        |  | 27.2     |       |         |  | 7.1    |       |  |  | 2.5   |       |  |  | 9.6     |       |  |  | 0.9        |       |   |  | 37.7    |        





---



##### Table of Contents



-6-




FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)

|                                                            |                        |  |            |       |                      |  |         |       |        |  |        |      |            |  |       |      |         |  |            |      |       |  |       |       |  |  |         |      |  |  |       |       |  |  |       |       | 
|----------------------------------------------------------- | ---------------------- |  | ---------- | ----- | -------------------- |  | ------- | ----- | ------ |  | ------ | ---- | ---------- |  | ----- | ---- | ------- |  | ---------- | ---- | ----- |  | ----- | ----- |  |  | ------- | ---- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                                                            |                        |  | U.S. Mines |       | South American Mines |  |         |       |       
|                                                            |                        |  |            |       |                      |  |         |       |       
|                                                            |                        |  |            |       |                      |  | Bagdad/ |       | Miami/ |  | Chino/ |      |            |  |       |      |         |  |            |      | Cerro |  |       |       |  |  | Primary
|                                                            |                        |  | Morenci    |       | Sierrita             |  | Bisbee  |       | Cobre  |  | Tyrone |      | Candelaria |  | Verde |      | El Abra |  | Molybdenum
|                                                            |                        |  |            |       |                      |  |         |       |        |  |        |      |            |  |       |      |         |  |           
|Nine Months Ended 2003                                      |                        |  |            |       |                      |  |         |       |        |  |        |      |            |  |       |      |         |  |            |      |       |  |       |       |  |  |         |      |  |  |       |       |  |  |       |      
|Sales and other operating revenues:                         |                        |  |            |       |                      |  |         |       |        |  |        |      |            |  |       |      |         |  |            |      |       |  |       |       |  |  |         |      |  |  |       |       |  |  |       |      
|                                                            | Unaffiliated customers |  |            |      |                      |  |         |      |        |  |        |     |            |  |       | 0.2  |         |  |            |     |       |  |       | 159.8 |  |  |         | 29.4 |  |  |       | 92.8  |  |  |       | 270.3 | 
|                                                            | Intersegment           |  |            | 424.3 |                      |  |         | 334.6 |        |  |        | 26.1 |            |  |       | 28.4 |         |  |            | 70.5 |       |  |       | 65.8  |  |  |         | 84.6 |  |  |       | 64.3  |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 57.4       |       |                      |  | 23.2    |       |        |  | 5.4    |      |            |  | 6.1   |      |         |  | 10.0       |      |       |  | 30.8  |       |  |  | 21.8    |      |  |  | 49.2  |       |  |  | 18.5  |      
|Operating income (loss) before special
items and provisions |                        |  | 38.2       |       |                      |  | 48.7    |       |        |  | (4.0   | )    |            |  | (8.5  | )    |         |  | (13.9      | )    |       |  | 59.1  |       |  |  | 26.7    |      |  |  | 18.5  |       |  |  | 0.1   |      
|Special items and provisions                                |                        |  | (1.1       | )     |                      |  |        |       |        |  | (0.5   | )    |            |  | (1.3  | )    |         |  | (0.5       | )    |       |  |      |       |  |  |        |      |  |  |      |       |  |  |      |      
|Operating income (loss)                                     |                        |  | 37.1       |       |                      |  | 48.7    |       |        |  | (4.5   | )    |            |  | (9.8  | )    |         |  | (14.4      | )    |       |  | 59.1  |       |  |  | 26.7    |      |  |  | 18.5  |       |  |  | 0.1   |      
|Assets at September 30                                      |                        |  | 1,028.6    |       |                      |  | 743.0   |       |        |  | 120.3  |      |            |  | 300.9 |      |         |  | 156.3      |      |       |  | 665.6 |       |  |  | 421.0   |      |  |  | 536.8 |       |  |  | 788.7 |      
|Expenditures for segment assets                             |                        |  | 13.1       |       |                      |  | 12.4    |       |        |  | 0.2    |      |            |  | 2.2   |      |         |  | 1.0        |      |       |  | 2.5   |       |  |  | 3.0     |      |  |  | (0.2  | )     |  |  | 8.9   |      
|                                                           
|Nine Months Ended 2002 (as restated)                        |                        |  |            |       |                      |  |         |       |        |  |        |      |            |  |       |      |         |  |            |      |       |  |       |       |  |  |         |      |  |  |       |       |  |  |       |      
|Sales and other operating revenues:                         |                        |  |            |       |                      |  |         |       |        |  |        |      |            |  |       |      |         |  |            |      |       |  |       |       |  |  |         |      |  |  |       |       |  |  |       |      
|                                                            | Unaffiliated customers |  |            |      |                      |  |         |      |        |  |        |     |            |  |       | 0.6  |         |  |            |     |       |  |       | 117.3 |  |  |         | 28.2 |  |  |       | 124.9 |  |  |       | 205.9 | 
|                                                            | Intersegment           |  |            | 397.7 |                      |  |         | 278.0 |        |  |        | 19.8 |            |  |       | 46.2 |         |  |            | 76.8 |       |  |       | 86.3  |  |  |         | 71.2 |  |  |       | 68.1  |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 59.5       |       |                      |  | 20.0    |       |        |  | 3.9    |      |            |  | 9.0   |      |         |  | 9.2        |      |       |  | 28.8  |       |  |  | 22.8    |      |  |  | 47.6  |       |  |  | 18.1  |      
|Operating income (loss) before special
items and provisions |                        |  | 25.9       |       |                      |  | 8.9     |       |        |  | (11.9  | )    |            |  | 7.4   |      |         |  | (0.2       | )    |       |  | 41.1  |       |  |  | 18.2    |      |  |  | (4.7  | )     |  |  | 10.9  |      
|Special items and provisions                                |                        |  | (0.5       | )     |                      |  |        |       |        |  | (2.3   | )    |            |  | (2.5  | )    |         |  |           |      |       |  |      |       |  |  |        |      |  |  |      |       |  |  |      |      
|Operating income (loss)                                     |                        |  | 25.4       |       |                      |  | 8.9     |       |        |  | (14.2  | )    |            |  | 4.9   |      |         |  | (0.2       | )    |       |  | 41.1  |       |  |  | 18.2    |      |  |  | (4.7  | )     |  |  | 10.9  |      
|Assets at September 30                                      |                        |  | 1,099.4    |       |                      |  | 752.3   |       |        |  | 120.4  |      |            |  | 402.2 |      |         |  | 148.7      |      |       |  | 662.7 |       |  |  | 451.8   |      |  |  | 528.0 |       |  |  | 792.5 |      
|Expenditures for segment assets                             |                        |  | 4.8        |       |                      |  | 29.9    |       |        |  | 0.2    |      |            |  | 2.2   |      |         |  | 2.7        |      |       |  | 1.8   |       |  |  | 4.6     |      |  |  | 3.8   |       |  |  | 6.9   |      

|                                                            |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |        |   |  |         |         | 
|----------------------------------------------------------- | ---------------------- |  | ----------- | ------- | ------ |  | ------- | ---- | -------- |  | --------- | -------- | ------ |  | -------- | ------- | ------- |  | ------ | ----- |  |  | ----- | ----- |  |  | ------- | ----- |  |  | ---------- | ------ | - |  | ------- | ------- | 
|                                                            |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  |         |       |  |  | Corporate, |        |   |  |        
|                                                            |                        |  | Manufactur- |         |        |  |         |      | PDMC     |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  | Other & |       |  |  |           
|                                                            |                        |  | ing and     |         | Other  |  | Elimi-  |      | PDMC     |  | Specialty |          | Wire & |  | PDI      |         | Elimi-  |  |        |       | 
|                                                            |                        |  | Sales       |         | Mining |  | nations |      | Subtotal |  | Chemicals |          | Cable  |  | Subtotal |         | nations |  | Totals
|                                                            |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |       
|Nine Months Ended 2003                                      |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |        |   |  |         |        
|Sales and other operating revenues:                         |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |        |   |  |         |        
|                                                            | Unaffiliated customers |  |             | 1,431.5 |        |  |         | 16.7 |          |  |           |         |        |  |          | 2,000.7 |         |  |        | 480.2 |  |  |       | 490.4 |  |  |         | 970.6 |  |  |            |       |   |  |         | 2,971.3 | 
|                                                            | Intersegment           |  |             | 235.8   |        |  |         | 51.8 |          |  |           | (1,293.7 | )      |  |          | 92.5    |         |  |        |      |  |  |       | 0.2   |  |  |         | 0.2   |  |  |            | (92.7  | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 12.6        |         |        |  | 5.1     |      |          |  |          |          |        |  | 240.1    |         |         |  | 34.1   |       |  |  | 26.7  |       |  |  | 60.8    |       |  |  | 11.0       |        |   |  | 311.9   |        
|Operating income (loss) before special
items and provisions |                        |  | 21.2        |         |        |  | (59.5   | )    |          |  |          |          |        |  | 126.6    |         |         |  | 34.3   |       |  |  | 12.3  |       |  |  | 46.6    |       |  |  | (70.9      | )      |   |  | 102.3   |        
|Special items and provisions                                |                        |  | (0.1        | )       |        |  | (2.0    | )    |          |  |          |          |        |  | (5.5     | )       |         |  | 3.2    |       |  |  | 0.4   |       |  |  | 3.6     |       |  |  | (7.7       | )      |   |  | (9.6    | )      
|Operating income (loss)                                     |                        |  | 21.1        |         |        |  | (61.5   | )    |          |  |          |          |        |  | 121.1    |         |         |  | 37.5   |       |  |  | 12.7  |       |  |  | 50.2    |       |  |  | (78.6      | )      |   |  | 92.7    |        
|Assets at September 30                                      |                        |  | 493.2       |         |        |  | 1,486.0 |      |          |  | (1,607.1  | )        |        |  | 5,133.3  |         |         |  | 745.9  |       |  |  | 532.0 |       |  |  | 1,277.9 |       |  |  | 588.4      |        |   |  | 6,999.6 |        
|Expenditures for segment assets                             |                        |  | 6.7         |         |        |  | 3.1     |      |          |  |          |          |        |  | 52.9     |         |         |  | 17.3   |       |  |  | 10.3  |       |  |  | 27.6    |       |  |  | 25.8       |        |   |  | 106.3   |        
|                                                           
|Nine Months Ended 2002 (as restated)                        |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |        |   |  |         |        
|Sales and other operating revenues:                         |                        |  |             |         |        |  |         |      |          |  |           |          |        |  |          |         |         |  |        |       |  |  |       |       |  |  |         |       |  |  |            |        |   |  |         |        
|                                                            | Unaffiliated customers |  |             | 1,393.3 |        |  |         | 15.3 |          |  |           |         |        |  |          | 1,885.5 |         |  |        | 408.3 |  |  |       | 532.7 |  |  |         | 941.0 |  |  |            |       |   |  |         | 2,826.5 | 
|                                                            | Intersegment           |  |             | 303.5   |        |  |         | 42.1 |          |  |           | (1,281.8 | )      |  |          | 107.9   |         |  |        |      |  |  |       | 0.3   |  |  |         | 0.3   |  |  |            | (108.2 | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 18.1        |         |        |  | 2.0     |      |          |  |          |          |        |  | 239.0    |         |         |  | 31.3   |       |  |  | 31.5  |       |  |  | 62.8    |       |  |  | 6.1        |        |   |  | 307.9   |        
|Operating income (loss) before special
items and provisions |                        |  | (1.5        | )       |        |  | (49.5   | )    |          |  |          |          |        |  | 44.6     |         |         |  | 41.2   |       |  |  | 9.5   |       |  |  | 50.7    |       |  |  | (55.1      | )      |   |  | 40.2    |        
|Special items and provisions                                |                        |  | 0.7         |         |        |  | 31.2    |      |          |  |          |          |        |  | 26.6     |         |         |  | 1.1    |       |  |  | (22.5 | )     |  |  | (21.4   | )     |  |  | (54.9      | )      |   |  | (49.7   | )      
|Operating income (loss)                                     |                        |  | (0.8        | )       |        |  | (18.3   | )    |          |  |          |          |        |  | 71.2     |         |         |  | 42.3   |       |  |  | (13.0 | )     |  |  | 29.3    |       |  |  | (110.0     | )      |   |  | (9.5    | )      
|Assets at September 30                                      |                        |  | 513.1       |         |        |  | 1,718.8 |      |          |  | (1,813.2  | )        |        |  | 5,376.7  |         |         |  | 652.2  |       |  |  | 525.8 |       |  |  | 1,178.0 |       |  |  | 744.5      |        |   |  | 7,299.2 |        
|Expenditures for segment assets                             |                        |  | 4.7         |         |        |  | 3.7     |      |          |  |          |          |        |  | 65.3     |         |         |  | 12.3   |       |  |  | 6.8   |       |  |  | 19.1    |       |  |  | 4.1        |        |   |  | 88.5    |        





---



##### Table of Contents



-7-




NOTES TO CONSOLIDATED FINANCIAL
INFORMATION
(Unaudited)



|1. |  | General Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The unaudited consolidated financial information of Phelps Dodge
Corporation (the Company, which may be referred to as Phelps Dodge, PD,
we, us or ours) presented herein has been prepared in accordance with the
instructions to Form 10-Q and does not include all of the information and
note disclosures required by U.S. generally accepted accounting principles
(GAAP). Therefore, this information should be read in conjunction with
the consolidated financial statements and notes thereto included in our
Form 10-K for the year ended December 31, 2002. This information reflects
all adjustments that are, in the opinion of management, necessary to a
fair statement of the results for the interim periods reported. Our
business consists of two divisions, Phelps Dodge Mining Company (PDMC) and
Phelps Dodge Industries (PDI).
|  
|   |  | The results of operations for the quarter and nine-month period ended
September 30, 2003, are not necessarily indicative of the results to be
expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|2. |  | Restatements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | In Note 1, Summary of Significant Accounting Policies, and Note 22,
Restatement of Consolidated Financial Statements, in the Companys Form
10-K for the year ended December 31, 2002, we identified certain
accounting matters in the fourth quarter of 2002 that required restatement
of our December 31, 2001 and 2000, Consolidated Financial Statements and
our financial information for the quarterly periods ended March 31, 2001,
through September 30, 2002. Additionally, our presentation of reportable
segment information for PDMC for the quarter and nine months ended
September 30, 2002, has been revised to reflect additional segments.                                                                                                                                                                                          
|  
|   |  | Following are summaries of selected unaudited quarterly financial data, as
restated for the quarter and nine months ended September 30, 2002:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

(Unaudited; $ in millions)

|                                                                                      |  |                    |       |        |  |            |      |          |  |  |       |   |  |  |       |  
|------------------------------------------------------------------------------------- |  | ------------------ | ----- | ------ |  | ---------- | ---- | -------- |  |  | ----- | - |  |  | ----- | -
|                                                                                      |  | Third Quarter 2002
|                                                                                      |  |                   
|                                                                                      |  |                    |       |        |  | Adjust-    |      |          |  |  |       |   |  | 
|                                                                                      |  |                    |       |        |  | ments      |      |          |  |  |       |   |  | 
|                                                                                      |  | As                 |       | (1)(2) |  | Reclass-   |      |          |  | 
|                                                                                      |  | Previously         |       | (3)(4) |  | ifications |      | As      
|                                                                                      |  | Reported           |       | (5)(6) |  | (7)        |      | Restated
|                                                                                      |  |                    |       |        |  |            |      |         
|Sales and other
operating
revenues                                                    |  | $                  | 941.2 |        |  |            |     |          |  |  |      |   |  |  | 941.2 |  
|Operating loss                                                                        |  |                    | (18.9 | )      |  |            | 6.9  |          |  |  |      |   |  |  | (12.0 | )
|Loss before
cumulative
effect of
accounting
change                                    |  |                    | (29.3 | )      |  |            | 2.2  |          |  |  | (26.6 | ) |  |  | (53.7 | )
|Net loss                                                                              |  |                    | (55.9 | )      |  |            | 2.2  |          |  |  |      |   |  |  | (53.7 | )
|Basic and diluted
loss per
common
share before
cumulative
effect of
accounting
change |  |                    | (0.37 | )      |  |            | 0.03 |          |  |  | (0.30 | ) |  |  | (0.64 | )
|Basic and diluted
loss per
common
share                                               |  |                    | (0.67 | )      |  |            | 0.03 |          |  |  |      |   |  |  | (0.64 | )

Adjustments comprise the following:



|(1) |  | Adjustments to the units-of-production depreciation rate calculation for
PDMCs mining, smelting and refining operations  this change reduced our
depreciation and amortization expense and reduced our operating loss by
$3.3 million in the third quarter of 2002. Additionally, this change
decreased our net loss by $2.6 million, or 3 cents per common share, in
the third quarter of 2002.                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Adjustments to the acquired reclamation obligations assumed in the Cyprus
Amax Minerals Company acquisition  this change increased our cost of
products sold and our operating loss by $0.9 million in the third quarter
of 2002. Additionally, this change increased our net loss by $0.7
million, or 1 cent per common share, in the third quarter of 2002.                                                                                                                    
|   
|(3) |  | Adjustments to the estimated reclamation obligation at our Tyrone mine in
2002 to exclude mineralized material from the determination of the unit
reclamation and closure accrual rate  this change increased our cost of
products sold, operating loss, and net loss by $2.4 million, or 3 cents
per common share, in the third quarter of 2002.                                                                                                                                
|   
|(4) |  | Adjustments to capitalize costs associated with material in mill and
leach stockpiles and the consequent in-process material being converted to
salable copper products, which were stated at the lower of cost or market
 this change decreased both our cost of products sold and our operating
loss by $6.9 million in the third quarter of 2002. Additionally, this
change decreased our net loss by $6.2 million, or 7 cents per common
share, in the third quarter of 2002.





---



##### Table of Contents



-8-



|(5) |  | In 2001, a deferred tax asset valuation allowance of $57.9 million
associated with our El Abra copper mine in Chile was established. The
adjustment to the deferred tax asset caused an increase to our net loss by
$3.9 million, or 4 cents per common share, in the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | The overall effect of the aforementioned adjustments resulted in an
incremental income tax expense that decreased our net loss by $0.4
million, or 1 cent per common share, in the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(7) |  | Effective January 1, 2003, the Company adopted SFAS No. 145, a standard
that addresses the classification of gains or losses from early
extinguishment of debt. Prior to the adoption of SFAS No. 145, the
Company reported losses from the early extinguishment of debt as
extraordinary items. During the quarter ended September 30, 2002, the
Company recorded a $26.6 million after-tax charge ($31.3 million pre-tax)
for early debt extinguishment costs. In 2003, these charges have been
reclassified to a recurring item in accordance with SFAS No. 145. These
reclassifications had no impact on reported net income.

(Unaudited; $ in millions except per share data)

|                                                                                      |  |                    |         |        |  |            |      |          |  |  |       |   |  |  |         |  
|------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------ |  | ---------- | ---- | -------- |  |  | ----- | - |  |  | ------- | -
|                                                                                      |  | Nine Months Ended 
|                                                                                      |  | September 30, 2002
|                                                                                      |  |                   
|                                                                                      |  |                    |         |        |  | Adjust-    |      |          |  |  |       |   |  | 
|                                                                                      |  |                    |         |        |  | ments      |      |          |  |  |       |   |  | 
|                                                                                      |  | As                 |         | (1)(2) |  | Reclass-   |      |          |  | 
|                                                                                      |  | Previously         |         | (3)(4) |  | ifications |      | As      
|                                                                                      |  | Reported           |         | (5)(6) |  | (7)        |      | Restated
|                                                                                      |  |                    |         |        |  |            |      |         
|Sales and other
operating
revenues                                                    |  | $                  | 2,826.5 |        |  |            |     |          |  |  |      |   |  |  | 2,826.5 |  
|Operating
loss                                                                        |  |                    | (27.7   | )      |  |            | 18.2 |          |  |  |      |   |  |  | (9.5    | )
|Loss before
cumulative
effect of
accounting
change                                    |  |                    | (70.5   | )      |  |            | 7.2  |          |  |  | (26.6 | ) |  |  | (89.9   | )
|Net loss                                                                              |  |                    | (120.0  | )      |  |            | 7.2  |          |  |  |      |   |  |  | (112.8  | )
|Basic and diluted
loss per
common
share before
cumulative
effect of
accounting
change |  |                    | (0.92   | )      |  |            | 0.09 |          |  |  | (0.32 | ) |  |  | (1.15   | )
|Basic and diluted
loss per
common
share                                               |  |                    | (1.52   | )      |  |            | 0.09 |          |  |  |      |   |  |  | (1.43   | )

Adjustments comprise the following:



|(1) |  | Adjustments to the units-of-production depreciation rate calculation for
PDMCs mining, smelting and refining operations  this change reduced our
depreciation and amortization expense and decreased our operating loss by
$9.0 million for the nine months ended September 30, 2002. Additionally,
this change decreased our net loss by $7.2 million, or 9 cents per common
share, for the nine months ended September 30, 2002.                                                                                                                                                                                             
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Adjustments to the acquired reclamation obligations assumed in the Cyprus
Amax Minerals Company
acquisition  this change increased both our cost of products sold and our
operating loss by $2.7 million for the nine months ended September 30, 2002.
Additionally, this change increased our net loss by $2.2 million, or 3 cents
per common share, for the nine months ended September 30, 2002.                                                                                                                                                                                                                             
|   
|(3) |  | Adjustments to the estimated reclamation obligation at our Tyrone mine in
2002 to exclude mineralized material from the determination of the unit
reclamation and closure accrual rate  this change increased our cost of
products sold and our operating loss and net loss by $6.6 million, or 8
cents per common share, for the nine months ended September 30, 2002.                                                                                                                                                                                                                                                         
|   
|(4) |  | Adjustments to capitalize costs associated with material in mill and
leach stockpiles and the consequent in-process material being converted to
salable copper products, which were stated at the lower of cost or market
 this change decreased our cost of products sold and our operating loss
by $18.5 million for the nine months ended September 30, 2002.
Additionally, this change decreased our net loss by $16.9 million, or 21
cents per common share, for the nine months ended September 30, 2002.                                                                                                                 
|   
|(5) |  | In 2001, a deferred tax asset valuation allowance of $57.9 million
associated with our El Abra copper mine in Chile was established. The
adjustment to the deferred tax asset caused an increase to our net loss by
$8.1 million, or 10 cents per common share, for the nine months ended
September 30, 2002.                                                                                                                                                                                                                                                                                                                    
|   
|(6) |  | The overall effect of the aforementioned adjustments resulted in an
incremental income tax expense that had no effect on our net loss for the
nine months ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(7) |  | Effective January 1, 2003, the Company adopted SFAS No. 145, a standard
that addresses the classification of gains or losses from early
extinguishment of debt. Prior to the adoption of SFAS No. 145, the
Company reported losses from the early extinguishment of debt as
extraordinary items. During the quarter ended September 30, 2002, the
Company recorded a $26.6 million after-tax charge ($31.3 million pre-tax)
for early debt extinguishment costs. In 2003, these charges have been
reclassified to a recurring item in accordance with SFAS No. 145. These
reclassifications had no impact on reported net income.
|   
|3.  |  | Reclassification of Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The Company had discussions with the staff of the Securities and Exchange
Commission regarding the balance sheet classification of certain mining
concessions, primarily mining concessions containing proven and probable
ore reserves and mineralized material at the Companys South American
mines, and whether such assets constitute tangible or intangible assets
based upon certain guidance contained in Statement of Financial Accounting
Standards (SFAS) No.                                                                                                                                                         





---



##### Table of Contents



-9-



| |  | 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. Historically the Company has
classified such assets, less the related accumulated depreciation,
depletion and amortization, as Property, plant and equipment, net on its
consolidated balance sheet. The Company has reclassified such mining
concessions as intangible assets. Previously reported historical amounts
also have been reclassified for comparative purposes. These assets will
continue to be amortized over their respective useful lives. The
reclassifications had no effect on the Companys net loss or shareholders
equity.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table summarizes the gross and net carrying amount of
intangible assets at December 31, 2002, and September 30, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | (Unaudited; $ in millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                              |  |               |        |              |  |  |       |  
|----------------------------- |  | ------------- | ------ | ------------ |  |  | ----- | -
|                              |  | September 30, |        | December 31,
|                              |  | 2003          |        | 2002        
|                              |  |               |        |             
|Gross carrying
amount         |  | $             | 443.6  | *            |  |  | 439.5 |  
|Less accumulated
amortization |  |               | (115.8 | )*           |  |  | (93.6 | )
|                              |  |               |        |              |  |  |       |  
|                              |  | $             | 327.8  |              |  |  | 345.9 |  
|                              |  |               |        |              |  |  |       |  

|* |  | Includes amounts for recording an asset retirement cost
associated with the implementation of SFAS No. 143. (See Note 6,
Accounting Standards, for further discussion.)
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Amortization expense related to intangible assets was $6.6 million and
$6.3 million for the three months ended September 30, 2003 and 2002,
respectively, and $20.2 million and $19.4 million for the nine months
ended September 30, 2003 and 2002, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The estimated annual aggregate amortization expense for intangibles is as
follows:                                                                                                                                                                                
|
| |  | (Unaudited; $ in millions)                                                                                                                                                                                                                                        

|     |  |   |     
|---- |  | - | ----
|2004 |  | $ | 26.8
|2005 |  |   | 27.3
|2006 |  |   | 27.3
|2007 |  |   | 27.4
|2008 |  |   | 27.6



|4. |  | Stock Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | We account for our stock option plans by measuring compensation cost using
the intrinsic-value-based method presented in Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. No compensation cost is reflected in
consolidated net loss, as all options granted under the plans had an
exercise price equal to the market value of the underlying common stock on
the date of the grant. The following table presents the effect on net
loss and loss per common share as if we had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, to compensation cost.

(Unaudited; $ in millions except per share data)

|                      |                                                                                             |   |               |       |      |  |                |       |  
|--------------------- | ------------------------------------------------------------------------------------------- | - | ------------- | ----- | ---- |  | -------------- | ----- | -
|                      |                                                                                             |   | Third Quarter
|                      |                                                                                             |   |              
|                      |                                                                                             |   | 2003          |       | 2002
|                      |                                                                                             |   |               |       |     
|                      |                                                                                             |   |               |       |      |  | (As Restated)*
|Net loss as reported  |                                                                                             | $ | (0.3          | )     |      |  | (53.7          | )    
|Deduct:               |                                                                                             |   |               |       |      |  |                |      
|                      | Total compensation cost
determined under fair value
based method for all awards,
net of tax |   |               | (2.9  | )    |  |                | (4.0  | )
|                      |                                                                                             |   |               |       |      |  |                |      
|Pro formanet loss     |                                                                                             | $ | (3.2          | )     |      |  | (57.7          | )    
|                      |                                                                                             |   |               |       |      |  |                |      
|Loss per common share |                                                                                             |   |               |       |      |  |                |      
|                      | Basic  as reported                                                                         |   | $             | (0.04 | )    |  |                | (0.64 | )
|                      | Basic  pro forma                                                                           |   | $             | (0.07 | )    |  |                | (0.69 | )
|Loss per common share |                                                                                             |   |               |       |      |  |                |      
|                      | Diluted  as reported                                                                       |   | $             | (0.04 | )    |  |                | (0.64 | )
|                      | Diluted  pro forma                                                                         |   | $             | (0.07 | )    |  |                | (0.69 | )



|* |  | Refer to Note 2, Restatements, for further discussion.
|- |  | ------------------------------------------------------





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##### Table of Contents



-10-

(Unaudited; $ in millions except per share data)

|                      |                                                                                             |   |                   |       |      |  |                |       |  
|--------------------- | ------------------------------------------------------------------------------------------- | - | ----------------- | ----- | ---- |  | -------------- | ----- | -
|                      |                                                                                             |   | Nine Months Ended
|                      |                                                                                             |   | September 30,    
|                      |                                                                                             |   |                  
|                      |                                                                                             |   | 2003              |       | 2002
|                      |                                                                                             |   |                   |       |     
|                      |                                                                                             |   |                   |       |      |  | (As Restated)*
|Net loss as reported  |                                                                                             | $ | (30.5             | )     |      |  | (112.8         | )    
|Deduct:               |                                                                                             |   |                   |       |      |  |                |      
|                      | Total compensation cost
determined under fair value
based method for all awards,
net of tax |   |                   | (8.7  | )    |  |                | (10.3 | )
|                      |                                                                                             |   |                   |       |      |  |                |      
|Pro formanet loss     |                                                                                             | $ | (39.2             | )     |      |  | (123.1         | )    
|                      |                                                                                             |   |                   |       |      |  |                |      
|Loss per common share |                                                                                             |   |                   |       |      |  |                |      
|                      | Basic  as reported                                                                         |   | $                 | (0.46 | )    |  |                | (1.43 | )
|                      | Basic  pro forma                                                                           |   | $                 | (0.56 | )    |  |                | (1.56 | )
|Loss per common share |                                                                                             |   |                   |       |      |  |                |      
|                      | Diluted  as reported                                                                       |   | $                 | (0.46 | )    |  |                | (1.43 | )
|                      | Diluted  pro forma                                                                         |   | $                 | (0.56 | )    |  |                | (1.56 | )



|* |  | Refer to Note 2, Restatements, for further discussion.
|- |  | ------------------------------------------------------



|5. |  | Special Items and Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Special items and provisions are unpredictable and atypical of the
Companys operations in a given period. We believe consistent
identification, disclosure and discussion of such items, both favorable
and unfavorable, provide additional information to assess the quality of
our performance and our earnings or losses. In addition, management
measures the performance of its reportable segments excluding special
items. This supplemental information is not a substitute for any U.S.
generally accepted accounting principles measure and should be evaluated
within the context of our U.S. GAAP results.

Note: Supplemental Data



| |  | The following schedule summarizes the special items and provisions for the
quarter and nine months ended September 30, 2003:
| |  | ----------------------------------------------------------------------------------------------------------------------------

(Unaudited; gains (losses) in millions except per share amounts)

|                                   |                       |                               |      |                    |      |           |      |   |      |   |       |   |       |  
|---------------------------------- | --------------------- | ----------------------------- | ---- | ------------------ | ---- | --------- | ---- | - | ---- | - | ----- | - | ----- | -
|                                   |                       |                               |      | Third Quarter 2003
|                                   |                       |                               |      |                   
|Statement of Consolidated          |                       | Pre-tax                       |      | After-tax          |      | $/Share  
|Operations Line Item               |                       | Earnings                      |      | Earnings           |      | After-tax
|                                   |                       |                               |      |                    |      |          
|Special items and provisions, net: |                       |                               |      |                    |      |           |      |   |      |   |       |  
|                                   | PDMC                 |                               |      |                    |      |           |      |   |      |   |       |   |      
|                                   |                       | Environmental
provisions, net |      | $                  | (5.0 | )         |      |   | (4.8 | ) |       |   | (0.05 | )
|                                   |                       |                               |      |                    |      |           |      |   |      |   |       |   |       |  
|                                   | PDI                  |                               |      |                    |      |           |      |   |      |   |       |   |      
|                                   |                       | Environmental
provisions, net |      |                    | 0.4  |           |      |   | 0.4  |   |       |   |      |  
|                                   |                       |                               |      |                    |      |           |      |   |      |   |       |   |       |  
|                                   | Corporate and Other  |                               |      |                    |      |           |      |   |      |   |       |   |      
|                                   |                       | Environmental
provisions, net |      |                    | (3.7 | )         |      |   | (3.5 | ) |       |   | (0.04 | )
|                                   |                       | Historic Cyprus Amax
matter   |      |                    | (1.1 | )         |      |   | (1.1 | ) |       |   | (0.01 | )
|                                   |                       |                               |      |                    |      |           |      |   |      |   |       |   |       |  
|                                   |                       |                               | (4.8 | )                  |      |           | (4.6 | ) |      |   | (0.05 | )
|                                   |                       |                               |      |                    |      |           |      |   |      |   |       |   |       |  
|                                   |                       | $                             | (9.4 | )                  |      |           | (9.0 | ) |      |   | (0.10 | )
|                                   |                       |                               |      |                    |      |           |      |   |      |   |       |   |       |  





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##### Table of Contents



-11-

(Unaudited; gains (losses) in millions except per share amounts)

|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|-------------------------------------- | --------------------- | ---------------------------------------------------- | ---- | ------------------ | ---- | --------- | ---- | - | ---- | - | ----- | - | ----- | -
|                                       |                       |                                                      |      | Nine Months Ended 
|                                       |                       |                                                      |      | September 30, 2003
|                                       |                       |                                                      |      |                   
|Statement of Consolidated              |                       | Pre-tax                                              |      | After-tax          |      | $/Share  
|Operations Line Item                   |                       | Earnings                                             |      | Earnings           |      | After-tax
|                                       |                       |                                                      |      |                    |      |          
|Special items and provisions, net:     |                       |                                                      |      |                    |      |           |      |   |      |   |       |  
|                                       | PDMC                 |                                                      |      |                    |      |           |      |   |      |   |       |   |      
|                                       |                       | Environmental
provisions, net                        |      | $                  | (5.5 | )         |      |   | (5.2 | ) |       |   | (0.06 | )
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|                                       | PDI                  |                                                      |      |                    |      |           |      |   |      |   |       |   |      
|                                       |                       | Environmental
provisions, net                        |      |                    | 0.4  |           |      |   | 0.4  |   |       |   |      |  
|                                       |                       | Termination of a foreign
postretirement benefit
plan |      |                    | 3.2  |           |      |   | 2.4  |   |       |   | 0.03  |  
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|                                       |                       |                                                      | 3.6  |                    |      |           | 2.8  |   |      |   | 0.03  |  
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|                                       | Corporate and Other  |                                                      |      |                    |      |           |      |   |      |   |       |   |      
|                                       |                       | Environmental
provisions, net                        |      |                    | (7.1 | )         |      |   | (6.8 | ) |       |   | (0.07 | )
|                                       |                       | Environmental insurance
recoveries, net              |      |                    | 0.5  |           |      |   | 0.5  |   |       |   | 0.01  |  
|                                       |                       | Historic Cyprus Amax
matter                          |      |                    | (1.1 | )         |      |   | (1.1 | ) |       |   | (0.01 | )
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|                                       |                       |                                                      | (7.7 | )                  |      |           | (7.4 | ) |      |   | (0.07 | )
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|                                       |                       |                                                      | (9.6 | )                  |      |           | (9.8 | ) |      |   | (0.10 | )
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|Miscellaneous income
(expense), net:   |                       |                                                      |      |                    |      |           |      |   |      |   |       |  
|                                       |                       | Gain on sale of cost
investment                      |      |                    | 6.4  |           |      |   | 6.4  |   |       |   | 0.07  |  
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|Cumulative effect of
accounting change |                       |                                                      | 9.7  |                    |      |           | 8.4  |   |      |   | 0.09  |  
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  
|                                       |                       | $                                                    | 6.5  |                    |      |           | 5.0  |   |      |   | 0.06  |  
|                                       |                       |                                                      |      |                    |      |           |      |   |      |   |       |   |       |  



| |  | In the 2003 third quarter, a special, net pre-tax loss of $9.4 million was
recognized consisting of (i) an $8.3 million charge ($7.9 million
after-tax) for environmental provisions (refer to Note 7, Environmental,
and Reclamation and Closure Matters) and (ii) a $1.1 million charge
(before and after taxes) for an historic Cyprus Amax matter.                                                                                                                                                                                                           
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the 2003 second quarter, a special, net pre-tax gain of $4.3 million
was recognized consisting of (i) a pre-tax gain of $6.4 million (before
and after taxes) for the sale of a cost-basis wire and cable investment;
(ii) a $2.6 million charge ($2.4 million after-tax) for environmental
provisions (refer to Note 7, Environmental, and Reclamation and Closure
Matters);
and (iii) a $0.5 million net gain (before and after taxes) from recoveries
associated with insurance settlements on historic environmental claims.                              
|
| |  | In the 2003 first quarter, a special, net pre-tax gain of $11.6 million
was recognized consisting of (i) a pre-tax gain of $9.7 million ($8.4
million after-tax) for the cumulative effect of an accounting change
(refer to Note 6, Accounting Standards, for further discussion); (ii) a
$1.3 million charge (before and after taxes) for environmental provisions
(refer to Note 7, Environmental, and Reclamation and Closure Matters); and
(iii) a $3.2 million gain ($2.4 million after-tax) from the termination of
a foreign postretirement benefit plan.

Note: Supplemental Data



| |  | The following schedule summarizes the special items and provisions for the
quarter and nine months ended September 30, 2002:
| |  | ----------------------------------------------------------------------------------------------------------------------------

(Unaudited; gains (losses) in millions except per share amounts)

|                                   |        |                                                |                                                               |           |                    |           |       |   |       |      |       |   |       |       |  
|---------------------------------- | ------ | ---------------------------------------------- | ------------------------------------------------------------- | --------- | ------------------ | --------- | ----- | - | ----- | ---- | ----- | - | ----- | ----- | -
|                                   |        |                                                |                                                               |           | Third Quarter 2002
|                                   |        |                                                |                                                               |           |                   
|Statement of Consolidated          |        | Pre-tax                                        |                                                               | After-tax |                    | $/Share  
|Operations Line Item               |        | Earnings                                       |                                                               | Earnings  |                    | After-tax
|                                   |        |                                                |                                                               |           |                    |          
|Special items and provisions, net: |        |                                                |                                                               |           |                    |           |       |   |       |      |       |  
|                                   | PDMC - |                                                |                                                               |           |                    |           |       |   |       |      |       |   |      
|                                   |        | Environmental provisions,
net                  |                                                               | $         | (2.5               | )         |       |   | (2.5  | )    |       |   | (0.03 | )    
|                                   |        | October 2001 restructuring:                    |                                                               |           |                    |           |       |   |       |      |       |   |       |      
|                                   |        |                                                | Reassessment of employee
activities and take-or-pay
contracts |           |                    | 4.4       |       |   |       | 4.4  |       |   |       | 0.05  |  
|                                   |        |                                                | Additional retirement
benefits                                |           |                    | (6.4      | )     |   |       | (6.4 | )     |   |       | (0.07 | )
|                                   |        | Environmental insurance
recoveries, net        |                                                               |           | (3.6               | )         |       |   | (2.5  | )    |       |   | (0.03 | )    
|                                   |        |                                                |                                                               |           |                    |           |       |   |       |      |       |   |       |      
|                                   |        |                                                | (8.1                                                          | )         |                    |           | (7.0  | ) |       |      | (0.08 | )
|                                   |        |                                                |                                                               |           |                    |           |       |   |       |      |       |   |       |      
|                                   | PDI -  |                                                |                                                               |           |                    |           |       |   |       |      |       |   |      
|                                   |        | September 2002 restructuring
programs          |                                                               |           | (23.0              | )         |       |   | (22.2 | )    |       |   | (0.25 | )    
|                                   |        | Environmental provisions,
net*                 |                                                               |           | 0.3                |           |       |   | 0.3   |      |       |   |      |      
|                                   |        | Reassessment of
prior restructuring
programs** |                                                               |           | 1.3                |           |       |   | 1.3   |      |       |   | 0.02  |      
|                                   |        |                                                |                                                               |           |                    |           |       |   |       |      |       |   |       |      
|                                   |        |                                                | (21.4                                                         | )         |                    |           | (20.6 | ) |       |      | (0.23 | )
|                                   |        |                                                |                                                               |           |                    |           |       |   |       |      |       |   |       |      





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##### Table of Contents



-12-

|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |       |  
|------------------------------- | ------------------------------------------------- | -------------------------------------------------------------------- | ----- | ------------------ | ---- | --------- | ----- | ---- | ---- | - | ----- | ---- | ----- | -
|                                |                                                   |                                                                      |       | Third Quarter 2002
|                                |                                                   |                                                                      |       |                   
|Statement of Consolidated       |                                                   | Pre-tax                                                              |       | After-tax          |      | $/Share  
|Operations Line Item            |                                                   | Earnings                                                             |       | Earnings           |      | After-tax
|                                |                                                   |                                                                      |       |                    |      |          
|                                | Corporate and Other -                             |                                                                      |       |                    |      |           |       |      |      |   |       |      |      
|                                |                                                   | Environmental provisions, net                                        |       |                    | (0.5 | )         |       |      | (2.9 | ) |       |      | (0.03 | )
|                                |                                                   | Environmental insurance
recoveries, net                              |       |                    | 6.8  |           |       |      | 6.1  |   |       |      | 0.07  |  
|                                |                                                   | Historic Cyprus Amax
lawsuit settlement                              |       |                    |     |           |       |      | (0.6 | ) |       |      | (0.01 | )
|                                |                                                   | Historic Cyprus Amax
arbitration award
with regard to
Plateau Mining |       |                    |     |           |       |      | (0.5 | ) |       |      | (0.01 | )
|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |      
|                                |                                                   |                                                                      | 6.3   |                    |      |           | 2.1   |      |      |   | 0.02  |     
|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |      
|                                |                                                   |                                                                      | (23.2 | )                  |      |           | (25.5 | )    |      |   | (0.29 | )   
|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |      
|Early debt extinguishment
costs |                                                   |                                                                      | (31.3 | )                  |      |           | (26.6 | )    |      |   | (0.30 | )   
|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |      
|Taxes:                          |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |     
|                                | Tax benefit for 2001 net
operating loss carryback |                                                                      |       |                   |      |           |       | 28.1 |      |   |       | 0.32 |      
|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |      
|Total                           |                                                   | $                                                                    | (54.5 | )                  |      |           | (24.0 | )    |      |   | (0.27 | )   
|                                |                                                   |                                                                      |       |                    |      |           |       |      |      |   |       |      |      

|*  |  | Includes reassessment of $0.6 million for prior restructuring programs.                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------
|  
|** |  | Includes $(0.1) million related to an increase in equipment reserve,
reflected in net property, plant and equipment.

(Unaudited; gains (losses) in millions except per share amounts)

|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |       |  
|---------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------------------- | --------- | ------------------ | --------- | ----- | ---- | ----- | ---- | ----- | ----- | ----- | ----- | -
|                                         |                                                         |                                                                      |                                                               |           | Nine Months Ended 
|                                         |                                                         |                                                                      |                                                               |           | September 30, 2002
|                                         |                                                         |                                                                      |                                                               |           |                   
|Statement of Consolidated                |                                                         | Pre-tax                                                              |                                                               | After-tax |                    | $/Share  
|Operations Line Item                     |                                                         | Earnings                                                             |                                                               | Earnings  |                    | After-tax
|                                         |                                                         |                                                                      |                                                               |           |                    |          
|Special items and provisions, net:       |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |      
|                                         | PDMC -                                                  |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |      
|                                         |                                                         | Environmental provisions,
net                                        |                                                               | $         | (2.5               | )         |       |      | (2.5  | )    |       |       | (0.03 | )    
|                                         |                                                         | October 2001 restructuring:                                          |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         |                                                         |                                                                      | Reassessment of employee
activities and take-or-pay
contracts |           |                    | 4.4       |       |      |       | 4.4  |       |       |       | 0.05  |  
|                                         |                                                         |                                                                      | Additional retirement
benefits                                |           |                    | (6.4      | )     |      |       | (6.4 | )     |       |       | (0.08 | )
|                                         |                                                         | Environmental insurance
recoveries, net                              |                                                               |           | 8.5                |           |       |      | 7.2   |      |       |       | 0.09  |      
|                                         |                                                         | Sale of non-core real estate                                         |                                                               |           | 22.6               |           |       |      | 22.6  |      |       |       | 0.27  |      
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         |                                                         |                                                                      | 26.6                                                          |           |                    |           | 25.3  |      |       |      | 0.30  |      
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         | PDI -                                                   |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |      
|                                         |                                                         | September 2002 restructuring
programs                                |                                                               |           | (23.0              | )         |       |      | (22.2 | )    |       |       | (0.27 | )    
|                                         |                                                         | Environmental provisions,
net                                        |                                                               |           | 0.3                |           |       |      | 0.3   |      |       |       |      |      
|                                         |                                                         | Reassessment of prior
restructuring programs                         |                                                               |           | 1.3                |           |       |      | 1.3   |      |       |       | 0.02  |      
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         |                                                         |                                                                      | (21.4                                                         | )         |                    |           | (20.6 | )    |       |      | (0.25 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         | Corporate and Other -                                   |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |      
|                                         |                                                         | Environmental provisions,
net                                        |                                                               |           | (12.6              | )         |       |      | (12.6 | )    |       |       | (0.15 | )    
|                                         |                                                         | Environmental insurance
recoveries, net                              |                                                               |           | 15.4               |           |       |      | 13.0  |      |       |       | 0.16  |      
|                                         |                                                         | Historic Cyprus Amax
lawsuit settlement                              |                                                               |           | (11.2              | )         |       |      | (9.5  | )    |       |       | (0.12 | )    
|                                         |                                                         | Historic Cyprus Amax
arbitration award
with regard to
Plateau Mining |                                                               |           | (46.5              | )         |       |      | (45.0 | )    |       |       | (0.54 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         |                                                         |                                                                      | (54.9                                                         | )         |                    |           | (54.1 | )    |       |      | (0.65 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         |                                                         |                                                                      | (49.7                                                         | )         |                    |           | (49.4 | )    |       |      | (0.60 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|Early debt extinguishment
cost           |                                                         |                                                                      | (31.3                                                         | )         |                    |           | (26.6 | )    |       |      | (0.32 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|Miscellaneous income and
expense, net:   |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |      
|                                         | Cost investment
write-downs                             |                                                                      |                                                               | (1.2      | )                  |           |       | (1.2 | )     |      |       | (0.01 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|Benefit (provision) for taxes
on income: |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |      
|                                         | Release of taxes provided with
regard to Plateau Mining |                                                                      |                                                               |          |                    |           |       | 13.0 |       |      |       | 0.16  |      
|                                         | Tax benefit for 2001 net
operating loss carryback       |                                                                      |                                                               |          |                    |           |       | 66.6 |       |      |       | 0.80  |      
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|                                         |                                                         |                                                                      |                                                              |           |                    |           | 79.6  |      |       |      | 0.96  |      
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|Cumulative effect of
accounting change   |                                                         |                                                                      | (33.0                                                         | )         |                    |           | (22.9 | )    |       |      | (0.28 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      
|Total                                    |                                                         | $                                                                    | (115.2                                                        | )         |                    |           | (20.5 | )    |       |      | (0.25 | )    
|                                         |                                                         |                                                                      |                                                               |           |                    |           |       |      |       |      |       |       |       |      





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##### Table of Contents



-13-



| |  | In the 2002 third quarter, a special, net pre-tax loss of $54.5 million
was recognized consisting of (i) a $23.0 million pre-tax charge ($22.2
million after-tax) for asset impairments and termination benefits
associated with the temporary closure of two U.S. wire and cable plants
and the consolidation of certain wire and cable operations; (ii) a $0.7
million net charge (before and after taxes) for the reassessment of prior
restructuring programs; (iii) a $2.7 million pre-tax charge for
environmental provisions; (iv) a $31.3 million charge ($26.6 million
after-tax) for early debt extinguishment costs; and (v) a $3.2 million
pre-tax gain, net of fees and expenses, from recoveries associated with
insurance settlements on historic environmental claims. In addition, the
2002 third quarter included a net tax benefit of $25.5 million consisting
of a special current tax benefit of $28.1 million associated with the 2001
net operating losses resulting from recent U.S. tax legislation, partially
offset by year-to-date adjustments ($2.6 million) reflecting refinements
in forecast estimates of U.S. net operating loss carrybacks for 2002
primarily associated with environmental provisions (refer to Note 10,
Benefit (Provision) for Taxes on Income).
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the 2002 second quarter, a special, net pre-tax loss of $31.0 million
was recognized consisting of (i) pre-tax charges of $46.5 million ($44.5
million after-tax) associated with an award made in a binding arbitration
proceeding filed against Cyprus Amax Minerals Company (Cyprus Amax) by
Plateau Mining Corporation (a former subsidiary of Cyprus Amax); (ii) an
$11.2 million charge including expenses ($8.9 million after-tax) for the
settlement of a lawsuit related to Amax Oil & Gas acquired with the Cyprus
Amax purchase; (iii) a $0.7 million pre-tax loss on the write-off of a
cost-basis investment; (iv) a $22.6 million gain (before and after taxes)
on the sale of a non-core parcel of real estate in New Mexico; and (v) a
$4.8 million net gain ($3.8 million after-tax) from recoveries associated
with insurance settlements on historic environmental claims. The taxes
associated with special items were a net benefit of $18.3 million,
including release of deferred taxes previously provided ($13.0 million)
and year-to-date adjustments ($2.0 million) reflecting
refinements in forecast estimates of U.S. net operating loss carrybacks
prior to 2002 (refer to Note 10, Benefit (Provision) for Taxes on Income).                                      
|
| |  | In the 2002 first quarter, a special, net pre-tax loss of $29.7 million
was recognized consisting of (i) pre-tax charges of $33.0 million ($22.9
million after-tax) for the cumulative effect of an accounting change
(refer to Note 6, Accounting Standards, for further discussion); (ii) a
$12.1 million charge (before and after taxes) for environmental
provisions; (iii) a $0.5 million ($0.4 million after-tax) write-off of a
cost-basis investment; and (iv) a $15.9 million gain ($13.1 million
after-tax), net of fees and expenses, from recoveries associated with
insurance settlements reached with companies on historic environmental
claims. In addition, the 2002 first quarter included a tax benefit of
$38.5 million for net operating loss carryback prior to 2002 resulting
from recent U.S. tax legislation (refer to Note 10, Benefit (Provision)
for Taxes on Income).                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In September 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. Refer to the Companys Form 10-K for
the year ended December 31, 2002, for additional discussion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The following schedules present a roll-forward from December 31, 2002, of
the liabilities incurred in connection with the September 2002
restructuring program, which were reflected as current liabilities in our
consolidated balance sheet:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

(Unaudited; $ in millions)

|               |                    |  |          |     |          |  |         |      |   |  |  |     | 
|-------------- | ------------------ |  | -------- | --- | -------- |  | ------- | ---- | - |  |  | --- | 
|               |                    |  | 12/31/02 |     | Payments |  | 9/30/03
|               |                    |  |          |     |          |  |        
|PDI           |                    |  |          |     |          |  |         |      |   |  |  |    
|Wire and Cable |                    |  |          |     |          |  |         |      |   |  |  |    
|               | Employee severance |  | $        | 1.3 |          |  |         | (1.1 | ) |  |  | 0.2 | 
|               |                    |  |          |     |          |  |         |      |   |  |  |     | 

Note: There were no payments in the 2003 third quarter.





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##### Table of Contents



-14-

(Unaudited; $ in millions)

|               |                    |  |            |     |          |  |         |      |   |  |  |     | 
|-------------- | ------------------ |  | ---------- | --- | -------- |  | ------- | ---- | - |  |  | --- | 
|               |                    |  | 2002       |     |          |  |         |      |   |  | 
|               |                    |  | Provision* |     | Payments |  | 9/30/02
|               |                    |  |            |     |          |  |        
|PDI           |                    |  |            |     |          |  |         |      |   |  |  |    
|Wire and Cable |                    |  |            |     |          |  |         |      |   |  |  |    
|               | Employee severance |  | $          | 3.3 |          |  |         | (0.7 | ) |  |  | 2.6 | 
|               |                    |  |            |     |          |  |         |      |   |  |  |     | 

|* |  | Provision excluded $2.8 million of pension and other postretirement
charges included in long-term liabilities.
|- |  | --------------------------------------------------------------------------------------------------------------



| |  | In the second quarter of 2001, we announced a restructuring of our
professional, administrative and operational support functions, as well as
various other operational improvement initiatives. Also in the fourth
quarter of 2001, we announced a series of actions to address the
then-current economic environment, including changes in copper operations
that led us to curtail approximately 220,000 metric tons of copper
production annually (including our partners share) and to curtail 54,000
metric tons of North American carbon black production annually in 2002.
Additionally, in the second quarter of 2000 and 1999, we announced plans
to reduce operating costs and restructure operations at our PDMC division
and our Wire and Cable segment. Refer to the Companys Form 10-K for the
year ended December 31, 2002, for additional discussion.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following schedules present a roll-forward from December 31, 2002 and
2001, of the liabilities incurred in connection with the 2001
restructuring programs, which were reflected as current liabilities in our
consolidated balance sheet:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

(Unaudited; $ in millions)

|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|----------------------- | ------------------ | ---------------------------------- | --- | -------- | --- | -------- | ---- | ------- | ---- | - | - | - | - | 
|                        |                    |                                    |     | 12/31/02 |     | Payments |      | 9/30/03
|                        |                    |                                    |     |   |     |  |      |  
|PDMC                   |                    |                                    |     |          |     |          |      |         |      |   |   |  
|U.S. Mines              |                    |                                    |     |          |     |          |      |         |      |   |   |  
|                        | Morenci            |                                    |     |          |     |          |      |         |      |   |   |   |  
|                        |                    | Employee
severance                 |     | $        | 0.1 |          |      |         | (0.1 | ) |   |   |  | 
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|                        | Bagdad/Sierrita    |                                    |     |          |     |          |      |         |      |   |   |   |  
|                        |                    | Mothballing/
take-or-pay
contracts |     |          | 0.2 |          |      |         | (0.2 | ) |   |   |  | 
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|                        | Miami/Bisbee       |                                    |     |          |     |          |      |         |      |   |   |   |  
|                        |                    | Mothballing/
take-or-pay
contracts |     |          | 0.1 |          |      |         | (0.1 | ) |   |   |  | 
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|                        | Chino/Cobre        |                                    |     |          |     |          |      |         |      |   |   |   |  
|                        |                    | Employee
severance                 |     |          | 0.1 |          |      |         | (0.1 | ) |   |   |  | 
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|                        |                    |                                    | 0.5 |          |     |          | (0.5 | )       |      |   |  |  
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|Manufacturing and Sales |                    |                                    |     |          |     |          |      |         |      |   |   |  
|                        | Employee
severance |                                    |     | 0.1      |     |          |      | (0.1    | )    |   |   |  |  
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 
|                        |                    | $                                  | 0.6 |          |     |          | (0.6 | )       |      |   |  |  
|                        |                    |                                    |     |          |     |          |      |         |      |   |   |   |   | 

Note: All payments were made in the 2003 first quarter.





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##### Table of Contents



-15-

(Unaudited; $ in millions)

|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|----------------------- | ---------------------------------- | ---------------------------------- | ---- | -------- | --- | ----- | ---- | --------- | ---- | ------- | ----- | ---- | ---- | - | --- | --- | --- | 
|                        |                                    |                                    |      |          |     |       |      | Reassess- |      | Pay-    |       |      |      |  
|                        |                                    |                                    |      | 12/31/01 |     | ments |      | ments     |      | 9/30/02
|                        |                                    |                                    |      |          |     |       |      |           |      |        
|PDMC                   |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|U.S. Mines              |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|                        | Morenci                            |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |    
|                        |                                    | Employee
severance                 |      | $        | 0.3 |       |      |           | 0.1  |         |       |      | (0.3 | ) |     |     | 0.1 | 
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        | Bagdad/Sierrita                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |    
|                        |                                    | Employee
severance                 |      |          | 3.5 |       |      |           | (0.8 | )       |       |      | (2.2 | ) |     |     | 0.5 | 
|                        |                                    | Mothballing/
take-or-pay
contracts |      |          | 3.1 |       |      |           | (0.8 | )       |       |      | (2.1 | ) |     |     | 0.2 | 
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 6.6  |          |     |       | (1.6 | )         |      |         | (4.3  | )    |      |   | 0.7 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        | Miami/Bisbee                       |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |    
|                        |                                    | Employee
severance                 |      |          | 1.8 |       |      |           | (0.5 | )       |       |      | (1.1 | ) |     |     | 0.2 | 
|                        |                                    | Mothballing/
take-or-pay
contracts |      |          | 1.0 |       |      |           | (0.4 | )       |       |      | (0.5 | ) |     |     | 0.1 | 
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 2.8  |          |     |       | (0.9 | )         |      |         | (1.6  | )    |      |   | 0.3 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        | Chino/Cobre                        |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |    
|                        |                                    | Employee
severance                 |      |          | 1.2 |       |      |           | (0.4 | )       |       |      | (0.6 | ) |     |     | 0.2 | 
|                        |                                    | Mothballing/
take-or-pay
contracts |      |          | 0.2 |       |      |           |     |         |       |      | (0.2 | ) |     |     |    | 
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 1.4  |          |     |       | (0.4 | )         |      |         | (0.8  | )    |      |   | 0.2 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        | Tyrone                             |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |    
|                        |                                    | Employee
severance                 |      |          | 0.2 |       |      |           |     |         |       |      | (0.2 | ) |     |     |    | 
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 11.3 |          |     |       | (2.8 | )         |      |         | (7.2  | )    |      |   | 1.3 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|Manufacturing and Sales |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|                        | Employee
severance                 |                                    |      | 1.4      |     |       |      | (0.2      | )    |         |       | (0.7 | )    |   |     | 0.5 |    
|                        | Mothballing/
take-or-pay
contracts |                                    |      | 4.1      |     |       |      | (1.2      | )    |         |       | (2.7 | )    |   |     | 0.2 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 5.5  |          |     |       | (1.4 | )         |      |         | (3.4  | )    |      |   | 0.7 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|Primary Molybdenum      |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|                        | Employee
severance                 |                                    |      | 0.1      |     |       |      |          |      |         |       | (0.1 | )    |   |     |    |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|Other Mining            |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|                        | Employee
severance                 |                                    |      | 0.8      |     |       |      | (0.2      | )    |         |       | (0.6 | )    |   |     |    |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 17.7 |          |     |       | (4.4 | )         |      |         | (11.3 | )    |      |   | 2.0 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|PDI                    |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|Specialty Chemicals     |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |    
|                        | Disposal and
dismantling           |                                    |      | 0.5      |     |       |      | (0.4      | )    |         |       | (0.1 | )    |   |     |    |    
|                        | Employee
severance                 |                                    |      | 0.8      |     |       |      | (0.1      | )    |         |       | (0.6 | )    |   |     | 0.1 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    |                                    | 1.3  |          |     |       | (0.5 | )         |      |         | (0.7  | )    |      |   | 0.1 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 
|                        |                                    | $                                  | 19.0 |          |     |       | (4.9 | )         |      |         | (12.0 | )    |      |   | 2.1 |    
|                        |                                    |                                    |      |          |     |       |      |           |      |         |       |      |      |   |     |     |     | 

Note: In the 2002 third quarter, reassessments were $(4.9) million, including
a reclassification of $(0.1) million to long-term liabilities, and payments
were $(2.6) million.



| |  | PDMCs reassessments of $4.4 million comprised (i) $2.0 million for an
adjustment to employee termination benefits and (ii) $2.4 million related
to savings from renegotiated contracts or from reduced penalties on demand
contracts. PDMCs reassessment of $2.0 million of employee termination
benefits was made because subsequently, as the plan was being implemented,
it was determined that certain employees identified in the restructuring
plan would be retained to fill open positions or would not be eligible for
supplemental unemployment as originally anticipated. In addition, a $6.4
million charge was recognized for additional pension-related benefits,
which are included in long-term liabilities, for employees at our Chino,
Miami, Sierrita and Bagdad operations as these operations will remain
curtailed beyond one year from their January 2002 curtailment.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | PDIs Specialty Chemicals segment reassessment comprised (i) a
reclassification of $0.1 million to long-term pension benefits and (ii)
$0.4 million for an adjustment to disposal and dismantling charges for the
El Dorado plant facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    





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##### Table of Contents



-16-



| |  | The following schedules present a roll-forward from December 31, 2002 and
2001, of the liabilities incurred in connection with the June 2000
restructuring program, which were reflected as current liabilities in our
consolidated balance sheet:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Unaudited; $ in millions)

|               |                               |  |          |     |          |  |         |   |  |  |  |     | 
|-------------- | ----------------------------- |  | -------- | --- | -------- |  | ------- | - |  |  |  | --- | 
|               |                               |  | 12/31/02 |     | Payments |  | 9/30/03
|               |                               |  |          |     |          |  |        
|PDI           |                               |  |          |     |          |  |         |   |  |  |  |    
|Wire and Cable |                               |  |          |     |          |  |         |   |  |  |  |    
|               | Plant removal and
dismantling |  | $        | 0.5 |          |  |         |  |  |  |  | 0.5 | 
|               |                               |  |          |     |          |  |         |   |  |  |  |     | 

(Unaudited; $ in millions)

|               |                               |  |          |     |       |  |           |      |         |  |  |      |   |  |  |     | 
|-------------- | ----------------------------- |  | -------- | --- | ----- |  | --------- | ---- | ------- |  |  | ---- | - |  |  | --- | 
|               |                               |  |          |     |       |  | Reassess- |      | Pay-    |  |  |      |  
|               |                               |  | 12/31/01 |     | ments |  | ments     |      | 9/30/02
|               |                               |  |          |     |       |  |           |      |        
|PDI           |                               |  |          |     |       |  |           |      |         |  |  |      |   |  |  |    
|Wire and Cable |                               |  |          |     |       |  |           |      |         |  |  |      |   |  |  |    
|               | Plant removal and
dismantling |  | $        | 1.9 |       |  |           | (1.3 | )       |  |  | (0.1 | ) |  |  | 0.5 | 
|               |                               |  |          |     |       |  |           |      |         |  |  |      |   |  |  |     | 

Note: In the 2002 third quarter, reassessments were $(0.7) million, including
currency translation adjustments of $(0.2) million, and payments were $(0.1)
million.



| |  | PDIs Wire and Cable segment reassessment comprised (i) a $0.5 million
adjustment to plant dismantling charges related to wire and cable plant
closures in Venezuela and (ii) an $0.8 million non-cash deduction related
to the devaluation of Venezuelan currency.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following schedules present a roll-forward from December 31, 2002 and
2001, of the liabilities incurred in connection with the June 1999
restructuring program, which were reflected as current liabilities in our
consolidated balance sheet:                 

(Unaudited; $ in millions)

|               |                                   |   |          |     |          |  |         |   |  |  |     |     | 
|-------------- | --------------------------------- | - | -------- | --- | -------- |  | ------- | - |  |  | --- | --- | 
|               |                                   |   | 12/31/02 |     | Payments |  | 9/30/03
|               |                                   |   |          |     |          |  |        
|PDMC          |                                   |   |          |     |          |  |         |   |  |  |     |    
|Other Mining   |                                   |   |          |     |          |  |         |   |  |  |     |    
|               | Mothballing/take-or-pay
contracts |   | $        | 0.6 |          |  |         |  |  |  |     | 0.6 | 
|               |                                   |   |          |     |          |  |         |   |  |  |     |     | 
|PDI           |                                   |   |          |     |          |  |         |   |  |  |     |    
|Wire and Cable |                                   |   |          |     |          |  |         |   |  |  |     |    
|               | Take-or-pay
contracts             |   |          | 1.0 |          |  |         |  |  |  |     | 1.0 | 
|               |                                   |   |          |     |          |  |         |   |  |  |     |     | 
|               |                                   | $ | 1.6      |     |          |  |        |   |  |  | 1.6 |    
|               |                                   |   |          |     |          |  |         |   |  |  |     |     | 

(Unaudited; $ in millions)

|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|------------------- | --------------------------------- | - | -------- | --- | ----- |  | --------- | ---- | ------- |  | ---- | ---- | - |  | --- | --- | 
|                    |                                   |   |          |     |       |  | Reassess- |      | Pay-    |  |      |      |  
|                    |                                   |   | 12/31/01 |     | ments |  | ments     |      | 9/30/02
|                    |                                   |   |          |     |       |  |           |      |        
|PDMC               |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |    
|Other Mining        |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |    
|                    | Employee
severance                |   | $        | 0.2 |       |  |           | (0.1 | )       |  |      | (0.1 | ) |  |     |    | 
|                    | Mothballing/take-or-pay
contracts |   |          | 1.4 |       |  |           |     |         |  |      | (0.7 | ) |  |     | 0.7 | 
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|                    |                                   |   | 1.6      |     |       |  | (0.1      | )    |         |  | (0.8 | )    |   |  | 0.7 |    
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|PDI                |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |    
|Specialty Chemicals |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |    
|                    | Disposal and
dismantling          |   |          | 0.3 |       |  |           | (0.3 | )       |  |      |     |   |  |     |    | 
|                    | Environmental                     |   |          | 0.6 |       |  |           | (0.6 | )       |  |      |     |   |  |     |    | 
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|                    |                                   |   | 0.9      |     |       |  | (0.9      | )    |         |  |     |      |   |  |    |    
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|Wire and Cable      |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |    
|                    | Take-or-pay
contracts             |   |          | 1.1 |       |  |           | (0.1 | )       |  |      |     |   |  |     | 1.0 | 
|                    | Plant removal and
dismantling     |   |          | 0.2 |       |  |           | (0.2 | )       |  |      |     |   |  |     |    | 
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|                    |                                   |   | 1.3      |     |       |  | (0.3      | )    |         |  |     |      |   |  | 1.0 |    
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|                    |                                   |   | 2.2      |     |       |  | (1.2      | )    |         |  |     |      |   |  | 1.0 |    
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 
|                    |                                   | $ | 3.8      |     |       |  | (1.3      | )    |         |  | (0.8 | )    |   |  | 1.7 |    
|                    |                                   |   |          |     |       |  |           |      |         |  |      |      |   |  |     |     | 

Note: In the 2002 third quarter, reassessments were $(1.3) million, including
a reclassification of $(0.1) million to long-term liabilities, and payments
were $(0.1) million.





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##### Table of Contents



-17-



|   |  | PDMCs reassessment included a $0.1 million reclassification to long-term
liabilities related to pension and other postretirement benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | PDIs Specialty Chemicals segment reassessment related to a Philippine
plant for (i) a $0.3 million adjustment to disposal and dismantling
charges and (ii) $0.6 million for environmental costs that were relieved
as the property was sold during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | PDIs Wire and Cable segment reassessment comprised (i) a $0.1 million
adjustment related to a lease contract and (ii) a $0.2 million adjustment
related to dismantling charges at a Venezuelan plant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|6. |  | Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset
Retirement Obligations. With the adoption of this Statement, we
recognize asset retirement obligations (AROs) as liabilities when
incurred, with the initial measurement at fair value. These liabilities
will be accreted to full value over time through charges to income. In
addition, an asset retirement cost is capitalized as part of the related
assets carrying value and will subsequently be depreciated over the
assets useful life. Our AROs consist primarily of costs associated with
mine reclamation and closure activities. These activities, which tend to
be site specific, generally include costs for earthwork, revegetation,
water treatment and demolition. Upon adoption, we recorded an increase to
our closure and reclamation reserve of approximately $2.5 million, net, an
increase to our mining properties assets and intangibles of approximately
$12.2 million and a cumulative gain of $8.4 million, net of deferred
income taxes. For the quarter and nine months ended September 30, 2003,
the effect of adopting SFAS No. 143 decreased loss before cumulative
effect of accounting change by approximately $3.6 million, or 4 cents per
common share, and $14.5 million, or 16 cents per common share,
respectively.
|  
|   |  | The following table summarizes the balance sheet impact associated with
the adoption of SFAS No. 143:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

(Unaudited; $ in millions)

|                                             |                              |   |              |       |          |  |          |      |            |  |        |       | 
|-------------------------------------------- | ---------------------------- | - | ------------ | ----- | -------- |  | -------- | ---- | ---------- |  | ------ | ----- | 
|                                             |                              |   |              |       |          |  | SFAS     |      | January 1,
|                                             |                              |   | December 31, |       | No. 143  |  | 2003    
|                                             |                              |   | 2002         |       | Adoption |  | After   
|                                             |                              |   | As Reported* |       | Impact   |  | Adoption
|                                             |                              |   |              |       |          |  |         
|Mining properties                            |                              | $ | 907.4        |       |          |  | 63.8     | **   |            |  | 971.2  |      
|Mining properties 
accumulated
depreciation |                              |   | (197.1       | )     |          |  | (53.2    | )    |            |  | (250.3 | )    
|                                             |                              |   |              |       |          |  |          |      |            |  |        |      
|                                             | Net mining
properties
assets |   | $            | 710.3 |          |  |          | 10.6 |            |  |        | 720.9 | 
|                                             |                              |   |              |       |          |  |          |      |            |  |        |      
|Intangibles                                  |                              | $ | 439.5        |       |          |  | 3.6      | **   |            |  | 443.1  |      
|Intangibles 
accumulated
amortization       |                              |   | (93.6        | )     |          |  | (2.0     | )    |            |  | (95.6  | )    
|                                             |                              |   |              |       |          |  |          |      |            |  |        |      
|                                             | Net intangibles              |   | $            | 345.9 |          |  |          | 1.6  |            |  |        | 347.5 | 
|                                             |                              |   |              |       |          |  |          |      |            |  |        |      
|Asset retirement
obligation
liability        |                              | $ | 138.6        |       |          |  | 10.4     | ***  |            |  | 149.0  |      
|                                             |                              |   |              |       |          |  |          |      |            |  |        |      

|*   |  | Reflects the reclassification of South American mining concessions from
property, plant and equipment, net to intangible assets (refer to Note 3,
Reclassification of Intangible Assets, for further discussion).           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Amounts include $84.0 million and $7.5 million of additions related to
recording an asset retirement cost, offset by $20.2 million and $3.9
million to reclassify amounts recognized as ore reserves in purchase
accounting.
|   
|*** |  | Amount consists of $2.5 million of liabilities recognized at adoption and
$7.9 million of reclassifications related to closure obligations from
other liabilities at adoption.                                              





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##### Table of Contents



-18-



| |  | The pro formaeffects of the application of SFAS No. 143 as if this
Statement had been adopted on January 1, 2002, are presented below:
| |  | --------------------------------------------------------------------------------------------------------------------------------------

(Unaudited; $ in millions except per share data)

|                                                                     |                                 |  |  |  |  |   |       |               |   | 
|-------------------------------------------------------------------- | ------------------------------- |  |  |  |  | - | ----- | ------------- | - | 
|                                                                     |                                 |  |  |  |  |   |       | Third Quarter
|                                                                     |                                 |  |  |  |  |   |       | 2002         
|                                                                     |                                 |  |  |  |  |   |       |              
|Loss before cumulative effect of
accounting change as reported       |                                 |  |  |  |  | $ | (53.7 | )            
|Reduced cost of products sold, net
of tax                            |                                 |  |  |  |  |   | 4.9   |              
|Additional depreciation expense,
net of tax benefit                  |                                 |  |  |  |  |   | (0.5  | )            
|                                                                     |                                 |  |  |  |  |   |       |              
|Pro formaloss before cumulative
effect of accounting change          |                                 |  |  |  |  | $ | (49.3 | )            
|                                                                     |                                 |  |  |  |  |   |       |              
|Loss per common share before
cumulative effect of accounting
change: |                                 |  |  |  |  |   |       |              
|                                                                     | Basic and diluted  as reported |  |  |  |  |   | $     | (0.64         | )
|                                                                     | Basic and diluted  pro forma   |  |  |  |  |   | $     | (0.59         | )
|Net loss as reported                                                 |                                 |  |  |  |  | $ | (53.7 | )            
|Pro formanet loss                                                    |                                 |  |  |  |  | $ | (49.3 | )            
|Loss per common share:                                               |                                 |  |  |  |  |   |       |              
|                                                                     | Basic and diluted  as reported |  |  |  |  |   | $     | (0.64         | )
|                                                                     | Basic and diluted  pro forma   |  |  |  |  |   | $     | (0.59         | )

(Unaudited; $ in millions except per share data)

|                                                                     |                                 |   |       |                   |   |      |        |       |   | 
|-------------------------------------------------------------------- | ------------------------------- | - | ----- | ----------------- | - | ---- | ------ | ----- | - | 
|                                                                     |                                 |   |       | Nine Months Ended
|                                                                     |                                 |   |       | September 30,    
|                                                                     |                                 |   |       |                  
|                                                                     |                                 |   |       | 2003              |   | 2002
|                                                                     |                                 |   |       |                   |   |     
|Loss before cumulative effect of
accounting change as reported       |                                 | $ | (38.9 | )                 |   |      | (89.9  | )    
|Reduced cost of products sold, net
of tax                            |                                 |   |      |                   |   |      | 14.2   |      
|Additional depreciation expense,
net of tax benefit                  |                                 |   |      |                   |   |      | (1.4   | )    
|                                                                     |                                 |   |       |                   |   |      |        |      
|Pro formaloss before cumulative
effect of accounting change          |                                 | $ | (38.9 | )                 |   |      | (77.1  | )    
|                                                                     |                                 |   |       |                   |   |      |        |      
|Loss per common share before
cumulative effect of accounting
change: |                                 |   |       |                   |   |      |        |      
|                                                                     | Basic and diluted  as reported |   | $     | (0.55             | ) |      |        | (1.15 | )
|                                                                     | Basic and diluted  pro forma   |   | $     | (0.55             | ) |      |        | (1.00 | )
|Net loss as reported                                                 |                                 | $ | (30.5 | )                 |   |      | (112.8 | )    
|Pro formanet loss                                                    |                                 | $ | (38.9 | )                 |   |      | (100.0 | )    
|Loss per common share:                                               |                                 |   |       |                   |   |      |        |      
|                                                                     | Basic and diluted  as reported |   | $     | (0.46             | ) |      |        | (1.43 | )
|                                                                     | Basic and diluted  pro forma   |   | $     | (0.55             | ) |      |        | (1.28 | )



| |  | The pro formaasset retirement obligation liability balances as if SFAS
No. 143 had been adopted on January 1, 2002, are as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------

(Unaudited; $ in millions)

|                                                                   |  |   |       | 
|------------------------------------------------------------------ |  | - | ----- | 
|Pro formaasset retirement obligation
liability  January 1, 2002   |  | $ | 138.1 | 
|Pro formaasset retirement obligation
liability  December 31, 2002 |  | $ | 149.0 | 



| |  | Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142, goodwill and intangible
assets that have indefinite useful lives are not amortized, but rather
tested at least annually for impairment. Intangible assets that have
finite useful lives will continue to be amortized over their useful lives.
Upon completion of the transitional impairment tests, the fair value of
three of the Companys international wire and cable reporting units was
determined to be less than the related carrying amount. The resulting
impairment loss recognized upon adoption of SFAS No. 142 in the first
quarter of 2002 was $33.0 million, pre-tax ($22.9 million after-tax) and
was recognized as a cumulative effect of a change in accounting principle.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Subsequently, the Company completed its annual goodwill impairment test as
of December 31, 2002, with no additional impairments. The Company will
continue to test its goodwill annually as of December 31, unless events
occur or circumstances change between annual tests that would more likely
than not reduce the fair value of a reporting unit below its carrying
amount.                                                                                                                                                                                                                                                                                                                                                                                                                                      





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##### Table of Contents



-19-



| |  | The changes in the carrying amount of goodwill for the year ended December
31, 2002, and nine months ended September 30, 2003, were as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------

(Unaudited; $ in millions)

|                                                     |  |           |       |          |  |       |       |   |  |  |       |  
|---------------------------------------------------- |  | --------- | ----- | -------- |  | ----- | ----- | - |  |  | ----- | -
|                                                     |  | Specialty |       | Wire and |  |       |       |  
|                                                     |  | Chemicals |       | Cable    |  |       |       |  
|                                                     |  | Segment   |       | Segment  |  | Total
|                                                     |  |           |       |          |  |      
|Balance as of
December 31, 2001                      |  | $         | 88.5  |          |  |       | 54.6  |   |  |  | 143.1 |  
|Goodwill acquired
during period                      |  |           |      |          |  |       |      |   |  |  |      |  
|Impairment losses upon
adoption of SFAS
No. 142      |  |           |      |          |  |       | (33.0 | ) |  |  | (33.0 | )
|Goodwill included in
the disposal of a
business unit |  |           |      |          |  |       |      |   |  |  |      |  
|Foreign currency translation adjustments             |  |           | (19.4 | )        |  |       |      |   |  |  | (19.4 | )
|                                                     |  |           |       |          |  |       |       |   |  |  |       |  
|Balance as of
December 31, 2002                      |  |           | 69.1  |          |  |       | 21.6  |   |  |  | 90.7  |  
|Goodwill acquired
during period                      |  |           |      |          |  |       |      |   |  |  |      |  
|Impairment losses                                    |  |           |      |          |  |       |      |   |  |  |      |  
|Goodwill included in
the disposal of a
business unit |  |           |      |          |  |       |      |   |  |  |      |  
|Foreign currency translation adjustments             |  |           | 8.3   |          |  |       |      |   |  |  | 8.3   |  
|                                                     |  |           |       |          |  |       |       |   |  |  |       |  
|Balance as of
September 30, 2003                     |  | $         | 77.4  |          |  |       | 21.6  |   |  |  | 99.0  |  
|                                                     |  |           |       |          |  |       |       |   |  |  |       |  



| |  | In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. Under SFAS No. 4, all
gains and losses from extinguishment of debt were required to be
aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. This Statement eliminates SFAS No. 4 and,
thus, the exception to applying APB No. 30 to all gains and losses related
to extinguishments of debt. As a result, gains and losses from
extinguishment of debt should be classified as extraordinary items only if
they meet the criteria in APB No. 30. Applying the provisions of APB No.
30 will distinguish transactions that are part of an entitys recurring
operations from those that are unusual or infrequent or that meet the
criteria for classification as an extraordinary item. Under SFAS No. 13,
the required accounting treatment of certain lease modifications that have
economic effects similar to sale-leaseback transactions was inconsistent
with the required accounting treatment for sale-leaseback transactions.
This Statement amends SFAS No. 13 to require that those lease
modifications be accounted for in the same manner as sale-leaseback
transactions. This Statement was adopted by the Company on January 1,
2003. As a result of this Statement being adopted, we have reclassified
the 2002 third quarter extraordinary item for debt extinguishment costs to
a recurring item.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The principal difference between this Statement and EITF
94-3 relates to its requirements for recognition of a liability for a cost
associated with an exit or disposal activity. This Statement requires
that a liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred. Under EITF 94-3, a
liability was recognized at the date of an entitys commitment to an exit
plan. This Statement is effective for exit or disposal activities
initiated after December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | In November 2002, FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for
the fair value of an obligation assumed under the guarantee. FIN 45 also
requires significant new disclosures by guarantors, in both interim and
annual financial statements, about obligations associated with guarantees
issued. FIN 45 disclosure requirements were adopted for our year ended
December 31, 2002; the initial recognition and measurement provisions were
adopted on a prospective basis to guarantees issued or modified after
December 31, 2002. There were no guarantees issued or modified in the
first                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         





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##### Table of Contents



-20-



|   |  | nine months of 2003 that required fair value recognition as a
liability that had a material impact on our financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In December 2002, FASB issued SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure  an Amendment of SFAS No. 123.
The Statement amends SFAS No. 123, Accounting for Stock-Based
Compensation, and provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. This Statement also amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
stock-based employee compensation and the effect of the method used on
reported results. This Statement was effective for fiscal years ending
after December 15, 2002. The Company adopted this Statement in regards to
disclosure provisions for the year ended December 31, 2002, and has
provided the interim information in Note 4, Stock Compensation.
|  
|   |  | In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46) to
clarify when a company should consolidate in its financial statements the
assets, liabilities and activities of a variable interest entity. FIN 46
provides general guidance as to the definition of a variable interest
entity and requires a variable interest entity to be consolidated if a
company absorbs the majority of the variable interest entitys expected
losses, or is entitled to receive a majority of the variable interest
entitys residual returns, or both. The adoption of FIN 46 did not have a
material impact on the Companys financial reporting and disclosures.                                                                                                                                                                                     
|  
|   |  | In April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts,
and for hedging activities under SFAS No. 133. In particular, this
Statement clarifies under what circumstances a contract with an initial
net investment meets the characteristic of a derivative and when a
derivative contains a financing component that warrants special reporting
in the statement of cash flows. This Statement is generally effective for
contracts entered into or modified after June 30, 2003. The adoption of
SFAS No. 149 did not have a material impact on the Companys financial
reporting and disclosures.                                                                                                               
|  
|   |  | In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS
No. 150 changes the accounting for certain financial instruments that,
under previous guidance, could be classified as equity or mezzanine
equity, by now requiring those instruments to be classified as liabilities
(or assets in some circumstances) in the statement of financial position.
Further, SFAS No. 150 requires disclosure regarding the terms of those
instruments and settlement alternatives. The guidance in SFAS No. 150
generally is effective for all financial instruments entered into or
modified after May 31, 2003, and is otherwise effective at the beginning
of the first interim period beginning after June 15, 2003. We have
evaluated SFAS No. 150 and determined that it does not have an impact on
our financial reporting and disclosures.
|  
|7. |  | Environmental, and Reclamation and Closure Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | As of December 31, 2002, we had a reserve balance of $305.9 million for
estimated future costs associated with environmental matters at closed
facilities and closed portions of certain operating facilities. During
the first nine months of 2003, we had a $5.7 million net increase in the
reserve estimate ($24.4 million of additions, $12.2 of
reductions and a $6.5
million reclassification to asset retirement obligation liability) and
$14.3 million of spending against the reserve. As of September 30, 2003,
the reserve balance was $297.3 million.                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | In the 2003 third quarter, we had an $8.3 million net increase in the
environmental reserve estimate. The increase comprised $20.5 million of
additions and $12.2 million of reductions. The two sites with significant
changes were American Zinc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               





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| |  | and Chemical site, with a decrease of $10.4
million, and Cyprus Foote Mineral Company, with an increase of $5.9
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 American Zinc and Chemical Company site
in Langeloth, Pennsylvania. The American Zinc and Chemical Company site
consists primarily of a former zinc smelter facility operated until 1947
by the former American Zinc and Chemical Company and includes some or all
of a contiguous, currently operating molybdenum refinery formerly owned by
the Climax Molybdenum Company, which is indirectly owned by Cyprus Amax
Minerals Company. 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
negative environmental conditions at the site, which predominate at and
about the former zinc smelter facility. The Companys Form 10-K for the
year ended December 31, 2002, indicated that preliminary evaluations of
the nature and extent of conditions at the site may range from $18 million
to $52 million. The Company reserved $20 million for possible remediation
work at this site. Recently, an engineering evaluation and
reasonable-cost analysis was performed to estimate the cost and
feasibility of implementing the most likely remedial action that PADEP
would accept based on effectiveness and implementability. To check the
validity of the analysis, estimated site remedial costs were compared with
costs from other environmental sites that have implemented similar
remedial actions. In addition, a reasonable-cost analysis was performed
on other possible remedial alternatives so a range of costs could be
established for consideration. This analysis indicates that remediation
of the
site may range from $9 million to $43 million, with the most likely point
of the range to be about $9 million. The most likely remedial action
would include an additional site investigation study, implementation of
stormwater controls, constructing an engineered cap over 60 acres of slag
and process waste, and long-term monitoring and operations and maintenance
of the site. While the Company has reduced its reserve to $9 million for
possible remediation work at the site, Cyprus Amax continues to believe
and will continue to indicate 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 that it is not liable.
|
| |  | Cyprus Foote Mineral Company Site                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | A former subsidiary of Cyprus Amax, the Cyprus Foote Mineral Company,
owned and operated a ferroalloy facility near Steubenville, Ohio, from
1958 to 1973. In 1973, Cyprus Foote sold the facility to a third party,
which continued to own and operate the facility until 1982. Since 1982,
the Steubenville, Ohio, ferroalloy facility has lain dormant, being owned
by various parties. From 1992 to 1997, both the U.S. Environmental
Protection Agency (EPA) and the Ohio Environmental Protection Agency
(OEPA) conducted environmental site inspections of the Steubenville
facility. In 1998, Cyprus Amax sold Cyprus Foote to Chemetall GmbH, which
subsequently renamed Cyprus Foote the Chemetall Foote Corporation. In
connection with this transaction, Cyprus Amax indemnified Chemetall for
certain environmental liabilities, which potentially include liabilities
of Cyprus Foote at the facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | In 1999, Cyprus Foote and other parties were issued a Notice of Violation
(NOV) from OEPA for the open dumping of waste materials and releasing
pollution into the waters of the state. On behalf of Cyprus Foote, Cyprus
Amax responded, urging that OEPA evaluate the post-1973 owners and
operators of the facility for their responsibility and ability to pay for
remediation. OEPA replied that it would not consider Cyprus Foote out of
compliance with state law until the agency investigated the ability to pay
of the post-1973 owners and operators. In 2002, OEPA issued Cyprus Foote
another NOV, alleging similar violations as the 1999 NOV. In subsequent
discussions, OEPA indicated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             





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| |  | that it believes the post-1973 owners and
operators are insolvent and that OEPA is now looking to Cyprus Foote to
correct the environmental violations at the site. A meeting between OEPA
and Cyprus Amax, on behalf of Cyprus Foote, has yet to be scheduled by
OEPA to discuss next steps in addressing the agencys regulatory concerns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In 2002, the Company estimated the reserve range to be from $1 million to
$17 million. The Company reserved $1 million as there was no point in the
range more likely than any other. However, because of observations during
the most recent site visit and Cyprus Amaxs knowledge of characteristics
of other ferrochromium slag, an engineering evaluation and reasonable-cost
analysis was performed to estimate the cost and feasibility of
implementing the most likely remedial action that OEPA would accept, based
on effectiveness and implementability. To check the validity of the
analysis, estimated site remedial costs were then compared with costs from
other environmental sites that have implemented similar remedial actions.
In addition, a reasonable-cost analysis was performed on other possible
remedial alternatives so a range of cost could be developed for
consideration. The overall analysis indicates that remediation of the
Steubenville site may range from $7 million to $18 million, with the most
likely point of the range to be $7 million. The Company has, therefore,
increased its reserve to $7 million for the site. The most likely
remedial action would include a site investigation study, implementation
of stormwater controls, covering approximately 40 acres with an engineered
cap, and long-term monitoring and operations and maintenance of the site.
|
| |  | The sites for which Phelps Dodge has received a notice of potential
liability or an information request that currently are considered to be
significant are the Pinal Creek site near Miami, Arizona; the Laurel Hill
site at Maspeth, New York; and the Cyprus Tohono site near Casa Grande,
Arizona. At September 30, 2003, the cost range for all reservable
remediation sites was estimated to be from $251 million to $588 million of
which approximately $297 million has been reserved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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.
As of September 30, 2003, the cost range for reasonably possible outcomes
for all such sites was estimated to be from $3 million to $17 million.
The liabilities arising from potential environmental obligations that have
not been reserved at this time may be material to the operating results of
a 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | On January 1, 2003, we adopted SFAS No. 143 (refer to Note 6, Accounting
Standards, for further discussion). The following table summarizes our
asset retirement obligation liability as of September 30, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

(Unaudited; $ in millions)

|                                                 |  |         |       |                    |  |  |       |  
|------------------------------------------------ |  | ------- | ----- | ------------------ |  |  | ----- | -
|                                                 |  | Third   |       | Nine Months       
|                                                 |  | Quarter |       | Ended             
|                                                 |  | 2003    |       | September 30, 2003
|                                                 |  |         |       |                   
|Beginning balance                                |  | $       | 177.1 |                    |  |  | 138.6 |  
|Liability recorded
upon adoption of
SFAS No. 143 |  |         |      |                    |  |  | 10.4  |  
|New liabilities during
the period                |  |         |      |                    |  |  | 0.6   |  
|Accretion expense                                |  |         | 3.9   |                    |  |  | 10.8  |  
|Payments                                         |  |         | (0.4  | )                  |  |  | (1.2  | )
|Revisions to cash flow
estimates                 |  |         | 0.3   |                    |  |  | 21.6  |  
|Foreign currency translation
adjustments         |  |         |      |                    |  |  | 0.1   |  
|                                                 |  |         |       |                    |  |  |       |  
|Ending balance                                   |  | $       | 180.9 |                    |  |  | 180.9 |  
|                                                 |  |         |       |                    |  |  |       |  



| |  | During the 2003 second quarter, we revised our cash flow estimates ($21.3
million discounted) for the Chino and Tyrone mines based on an agreement
with NMED on the cost estimate for Chino reached in April 2003 and
preliminary cost estimate for Tyrone identified in May 2003 by NMED for
the financial assurance requirements as part of the closure plans related
to the operations at Chino, Cobre and Tyrone (refer to Note 8,
Contingen-
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|   |  | cies, for further discussion). The effect of this change in
estimate did not have a material impact on our results of operations for
the quarter and nine months ended September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | We have estimated our share of the total cost of asset retirement
obligations at approximately $1.1 billion (unescalated, undiscounted and
on a third-party cost basis), leaving approximately $909 million remaining
to be accreted over time. These aggregate costs may increase or decrease
materially in the future as a result of changes in regulations,
technology, mine plans or other factors. Asset retirement obligation
activities and expenditures generally are made over an extended period of
time commencing near the end of the mine life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|8. |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Significant New Mexico Closure 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 the 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, which Chino has
moved to dismiss on procedural grounds. 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 has appealed. A hearing on
Tyrones appeal has been set before the WQCC. 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      





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| |  | 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. 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.
Based on NMEDs permit actions, closeout plan approval under the Mining
Commissions Order for Chino was due by September 24, 2003, but was
extended by the MMD Director to November 24, 2003. The closeout plan
approval date for Tyrone is 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 $394 million, based upon third-party unescalated and
undiscounted capital and operating costs over a 100-year operating period,
including the cost of technical studies required under the permit. The
Companys two-thirds share of NMEDs $394 million estimate is
approximately $263 million and our joint venture partners cost share is
approximately $131 million. We estimate total costs for Chino Mines
Company to achieve the closure standards required by NMED to be
approximately $287 million (100 percent basis); that estimate is
approximately one-third lower than the financial assurance cost estimate
as a result of the Companys historical cost advantages, savings                              





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-25-



| |  | 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 $191 million and our joint venture partners cost share is
approximately $96 million. At September 30, 2003, and December 31, 2002,
we had accrued approximately $18 million and $8 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 permits 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 $257 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
September 30, 2003, and December 31, 2002, we had accrued closure costs of
approximately $61 million and $27 million, respectively, at Tyrone and
approximately $7 million and $2 million, respectively, 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 (NPV) 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 NMED, the financial assurance amount for Chino
could be approximately $191 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 MMD can approve the closeout plan. Chino and
Tyrone have provided approximately $56 million and $58 million of
financial assurance in the form of surety bonds, respectively, to NMED
under the terms of several discharge permits. The closure and financial
assurance requirements of these permits have been superseded by the
recently issued NMED closure permits. Consequently, the Company has
advised NMED that this financial assurance should be terminated and
replaced by new financial assurance under the terms of the new closure
permits. Chino and Tyrone have submitted financial assurance proposals in
accordance with the schedules under their NMED closure permit proposing
financial assurance primarily in the form of corporate performance
guarantees from the Company. 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





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| |  | will be required to provide
substantial amounts of additional financial assurance to cover the amounts
of the approved cost estimates. Hidalgo currently has provided financial
assurance in the amount of approximately $11 million under its discharge
permit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In late May 2003, the Company and the state announced an agreement on a
framework for the Company to provide financial assurance for Chino, Tyrone
and Cobre under both NMMAR and WQCC Regulations. Under this agreement,
the Company will provide financial assurance based upon the NPV of the
cost estimates in a total amount of approximately $484 million.
Initially, approximately 70 percent of this amount will be covered by a
corporate performance guarantee. The balance of approximately 30 percent
will
be provided as trust funds and collateral, including cash and liens on
certain owned parcels of non-mining real estate located in New Mexico. In
addition, the Company agreed to expend at least $30 million on accelerated
closure and reclamation work over the next 10 years. The amounts to be
covered by guarantees will be reduced to approximately 64 percent by the
amount of accelerated reclamation performed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Following the July announcement of the Companys agreed upon acquisition
of Heisei Minerals Corporations (Heisei) one-third interest in Chino and
Heiseis agreement to provide funding for one-third of the Chino financial
assurance in a trust fund, the Company and the state engaged in further
discussions regarding the details of the financial assurance to be
provided under the May 2003 framework. On October 1, 2003, the Company
and the state announced the signing of an addendum to the May agreement.
Under the addendum, Chinos financial assurance will consist of one-third
as a trust fund and the remaining two-thirds as a guarantee. Completion
of the one-third acquisition from Heisei, which is subject to certain
closing conditions, is expected to occur in the 2003 fourth quarter.
Tyrone will place an initial amount of $17 million in a trust fund,
increasing to $27 million over five years. About $62.8 million in
collateral will be required initially to cover the 30 percent of Tyrones
financial assurance not covered by a guarantee. Cobre will have a $1
million trust fund, increasing to $3 million over five years, and an
initial amount of about $7.4 million in collateral. The addendum also
sets a goal of a total of $109.8 million, including earnings on the trust
funds, in all three trust funds at the end of a five-year period. The
addendum retains the Companys commitment to expend at least $30 million
over the next 10 years on accelerated reclamation of inactive portions of
the three mines, and adds a schedule identifying particular projects and
anticipated timeframes for reclamation.
|
| |  | On October 10, 2003, Tyrone signed a Settlement Agreement with NMED to
fulfill a major portion of the commitment to expend at least $30 million
for reclamation by agreeing to reclaim all of the inactive tailing
impoundments at Tyrone over an eight-year period. The Settlement
Agreement was executed on behalf of NMED on October 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Finalization of the financial assurance is subject to completion of the
permitting process, including additional public comment and hearings. MMD
also has proposed some changes to NMMAR for consideration by the Mining
Commission, which could affect the final financial assurance package.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Avian Mortalities and Natural Resource Damage Claims                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Since the fall of 2000, the Companys mining operations have been updating
plans and implementing additional measures to reduce avian mortalities
following the discovery of avian mortalities at some of the Companys
mining operations, including Tyrone and Morenci. During this period, the
mine operators have been sharing information and discussing various
approaches with the U.S. Fish and Wildlife Service (FWS) in conjunction
with FWS investigations of the avian mortalities. As a result of the FWS
investigations, federal authorities have raised issues related to the
avian mortalities under two federal laws, the Migratory Bird Treaty Act
(MBTA) and the natural resource damages provision of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA). As part
of the discussions regarding the MBTA, the FWS has requested that the
mining op-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     





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##### Table of Contents



-27-



|   |  | erations undertake various measures to reduce the potential for
future avian mortalities, including measures to eliminate or reduce avian
access to ponds that contain acidic water. The FWS interprets the MBTA as
strictly prohibiting the unauthorized taking of any migratory bird, and
there are no licensing or permitting provisions under the MBTA that would
authorize the taking of migratory birds as a result of industrial
operations, such as mining. The Tyrone mine has entered into a settlement
agreement with NMED to complete reclamation of its inactive tailing ponds,
which should address many of the avian concerns related to Tyrone. The
Morenci mine also is developing plans for
additional measures to address the FWSs concerns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company received a letter, dated August 21, 2003, from the U.S.
Department of Interior, as trustee for certain natural resources, and on
behalf of trustees for the states of New Mexico and Arizona asserting
claims for natural resource damages relating to the avian mortalities and
other matters. The notice cited CERCLA and the Clean Water Act and
identified alleged releases of hazardous substances at the Chino, Tyrone
and Continental (Cobre Mining Company) Mines in New Mexico and the Morenci
Mine in Arizona. In addition to allegations of natural resource damages
relating to avian mortalities, the letter alleges injuries to other
natural resources, including other wildlife, surface water and ground
water. The letter was accompanied by a Preassessment Screen report. The
letter expresses the trustees interest in engaging in a cooperative
assessment regarding the claims in which the Company would participate in
the assessment of the alleged injuries and potential damages with the
objective of settling the claims. The Company has entered into tolling
agreements with the trustees to toll the statute of limitations pending
discussions with the trustees regarding a cooperative assessment process.
|  
|9. |  | Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shares by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per common share is
computed in a similar manner except that the denominator is increased to
include the incremental number of common shares that would have been
outstanding assuming the conversion of mandatory convertible preferred
shares, the exercise of stock options where the exercise prices were less
than the average market price of the Companys common shares during the
period, and the number of unvested restricted shares, but all of the
foregoing only to the extent that the related impacts are not
anti-dilutive. Additionally, dividends on mandatory convertible preferred
shares that were deducted in arriving at net income (loss) available to
common shares are added back to the numerator as a result of the assumed
conversion of such preferred shares.                                                                                                                                                                                                                                                     
|  
|   |  | For the quarter and nine-months ended September 30, 2003, the number of
incremental common shares relating to the assumed conversion of the
mandatory convertible preferred shares (4.6 million and 4.9 million,
respectively) and stock options (0.4 million and 0.2 million,
respectively) and unvested restricted stock (0.4 million) issued to
employees were excluded from the calculation as the related impacts were
anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | As a result of the net loss experienced for the quarter and nine-months
ended September 30, 2002, the number of incremental common shares relating
to the assumed conversion of the mandatory convertible preferred shares
(5.0 million and 2.0 million, respectively) and unvested restricted stock
(0.3 million) issued to employees were excluded from the calculation as
the related impacts were anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Finally, common shares relating to stock options where the exercise prices
exceeded the average market price of the Companys common shares during
the period were also excluded from the diluted earnings per share
calculation as
the related impact was anti-dilutive. Incre-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           





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-28-



| |  | mental shares relating to
these options totaled 6.3 million shares at an average exercise price of
$61.08 for the 2003 third quarter and 7.2 million at an average exercise
price of $58.89 for the nine months ended September 30, 2003; and 9.1
million shares at an average exercise price of $55.91 for the 2002 third
quarter and 7.5 million shares at an average exercise price of $60.90 for
the nine months ended September 30, 2002.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Unaudited; $ in millions except per share data)

|                                   |                               |                                              |   |               |      |      |  |                |       |  
|---------------------------------- | ----------------------------- | -------------------------------------------- | - | ------------- | ---- | ---- |  | -------------- | ----- | -
|                                   |                               |                                              |   | Third Quarter
|                                   |                               |                                              |   |              
|                                   |                               |                                              |   | 2003          |      | 2002
|                                   |                               |                                              |   |               |      |     
|                                   |                               |                                              |   |               |      |      |  | (As Restated)*
|Basic Loss Per Share Computation   |                               |                                              |   |               |      |      |  |               
|                                   | Numerator:                    |                                              |   |               |      |      |  |                |      
|                                   |                               | Net loss                                     |   | $             | (0.3 | )    |  |                | (53.7 | )
|                                   |                               | Preferred stock dividends                    |   |               | (3.3 | )    |  |                | (3.3  | )
|                                   |                               |                                              |   |               |      |      |  |                |       |  
|                                   |                               | Net loss applicable
to common shares         |   | $             | (3.6 | )    |  |                | (57.0 | )
|                                   | Denominator:                  |                                              |   |               |      |      |  |                |      
|                                   |                               | Weighted average common
shares outstanding   |   |               | 88.7 |      |  |                | 88.6  |  
|                                   |                               |                                              |   |               |      |      |  |                |       |  
|                                   | Basic loss per common share   |                                              | $ | (0.04         | )    |      |  | (0.64          | )    
|                                   |                               |                                              |   |               |      |      |  |                |       |  
|Diluted Loss Per Share Computation |                               |                                              |   |               |      |      |  |               
|                                   | Numerator:                    |                                              |   |               |      |      |  |                |      
|                                   |                               | Net loss                                     |   | $             | (0.3 | )    |  |                | (53.7 | )
|                                   | Denominator:                  |                                              |   |               |      |      |  |                |      
|                                   |                               | Weighted average common
shares outstanding** |   |               | 88.7 |      |  |                | 88.6  |  
|                                   |                               |                                              |   |               |      |      |  |                |       |  
|                                   | Diluted loss per common share |                                              | $ | (0.04         | )    |      |  | (0.64          | )    
|                                   |                               |                                              |   |               |      |      |  |                |       |  



|*  |  | Refer to Note 2, Restatements, for further discussion.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Resulting from anti-dilutive impact, excludes (i) conversion of mandatory
convertible preferred shares to common shares of 4.6 million and 5.0
million shares, respectively, in the third quarters of 2003 and 2002; (ii)
additional common shares of 0.4 million and 0.3 million shares,
respectively, in the third quarters of 2003 and 2002 for unvested
restricted stock; and (iii) additional common shares of 0.4 million in the
third quarter of 2003 for stock options issued to employees.

(Unaudited; $ in millions except per share data)

|                                   |                               |                                              |   |                   |       |      |  |                |        |  
|---------------------------------- | ----------------------------- | -------------------------------------------- | - | ----------------- | ----- | ---- |  | -------------- | ------ | -
|                                   |                               |                                              |   | Nine Months Ended
|                                   |                               |                                              |   | September 30,    
|                                   |                               |                                              |   |                  
|                                   |                               |                                              |   | 2003              |       | 2002
|                                   |                               |                                              |   |                   |       |     
|                                   |                               |                                              |   |                   |       |      |  | (As Restated)*
|Basic Loss Per Share Computation   |                               |                                              |   |                   |       |      |  |               
|                                   | Numerator:                    |                                              |   |                   |       |      |  |                |       
|                                   |                               | Net loss                                     |   | $                 | (30.5 | )    |  |                | (112.8 | )
|                                   |                               | Preferred stock dividends                    |   |                   | (10.1 | )    |  |                | (5.7   | )
|                                   |                               |                                              |   |                   |       |      |  |                |        |  
|                                   |                               | Net loss applicable
to common shares         |   | $                 | (40.6 | )    |  |                | (118.5 | )
|                                   | Denominator:                  |                                              |   |                   |       |      |  |                |       
|                                   |                               | Weighted average common
shares outstanding   |   |                   | 88.6  |      |  |                | 82.6   |  
|                                   |                               |                                              |   |                   |       |      |  |                |        |  
|                                   | Basic loss per common share   |                                              | $ | (0.46             | )     |      |  | (1.43          | )     
|                                   |                               |                                              |   |                   |       |      |  |                |        |  
|Diluted Loss Per Share Computation |                               |                                              |   |                   |       |      |  |               
|                                   | Numerator:                    |                                              |   |                   |       |      |  |                |       
|                                   |                               | Net loss                                     |   | $                 | (30.5 | )    |  |                | (112.8 | )
|                                   | Denominator:                  |                                              |   |                   |       |      |  |                |       
|                                   |                               | Weighted average common
shares outstanding** |   |                   | 88.6  |      |  |                | 82.6   |  
|                                   |                               |                                              |   |                   |       |      |  |                |        |  
|                                   | Diluted loss per common share |                                              | $ | (0.46             | )     |      |  | (1.43          | )     
|                                   |                               |                                              |   |                   |       |      |  |                |        |  



|*  |  | Refer to Note 2, Restatements, for further discussion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Resulting from anti-dilutive impact, excludes (i) conversion of mandatory
convertible preferred shares to common shares of 4.9 million and 2.0
million shares, respectively, for the nine months ended September 30, 2003
and 2002; (ii) additional common shares of 0.4 million and 0.3 million for
the nine months ended September 30, 2003 and 2002, for unvested restricted
stock; and (iii) additional common shares of 0.2 million for the nine
months ended September 30, 2003, for stock options issued to employees.



|10. |  | Benefit (Provision) for Taxes on Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys income tax provision for the 2003 third quarter principally
resulted from (i) taxes on earnings at international operations ($14.0
million) that cannot be offset by losses at domestic operations; partially
offset by (ii) a current-year loss carryback benefit for U.S. operations
($2.0 million). The Companys income tax provision for the nine months
ended September 30, 2003, primarily comprised the following: (i) taxes on
earnings at international operations ($41.2 million) that cannot be offset
by losses at domestic operations; partially offset by (ii) a benefit from
finalizing year-end 2002 estimates in the Companys 2002 U.S. tax return
filed in June 2003 ($4.2 million) and (iii) a current-year loss carryback
benefit for U.S. operations ($3.1 million).





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-29-



|    |  | The Companys income tax benefit for the 2002 third quarter comprised the
following items: (i) an additional $28.1 million special tax benefit
associated with 2001 net operating losses that, based on new tax
legislation, may be carried back to recover prior years taxes; (ii) a
$5.0 million benefit recognized for the 2002 third quarter net operating
losses that, based on the March enactment of the Job Creation and Worker
Assistance Act of 2002, may also be carried back to recover prior years
taxes; and (iii) a $2.0 million expense for taxes on earnings at
international operations. The Companys income tax benefit for the nine
months ended September 30, 2002, comprised the following items: (i) a
$66.6 million tax benefit associated with the carryback of 2001 net
operating losses that, based on new tax legislation, may be carried back
to recover prior years taxes; (ii) a $39.8 million benefit recognized for
the first nine months of 2002 net operating losses, based on new tax
legislation; (iii) a $17.8 million expense for taxes on earnings at
international operations; and (iv) a $13.0 million benefit for release of
deferred taxes previously provided.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|11. |  | Accounting for Derivative Instruments and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The Company does not purchase, hold or sell derivative contracts unless we
have an existing asset, obligation or anticipate a future activity that is
likely to occur and will expose us to market risk. We do not enter into
any contracts for speculative purposes. We use various strategies to
manage our market risk, including the use of derivative contracts to
limit, offset or reduce our market exposure. Derivative instruments are
used to manage well-defined commodity price, energy, interest rate and
foreign exchange risks from our primary business activities. The fair
values of our derivative instruments are based on quoted market prices for
similar instruments at period end. Refer to Managements Discussion and
Analysis and Note 20, Derivative Financial Instruments Held for Purposes
Other Than Trading and Fair Value of Financial Instruments, to the
Consolidated Financial Statements included in the Companys Form 10-K for
the year ended December 31, 2002, for a discussion on our derivative
instruments.                                                                                                                                                        
|   
|    |  | During the quarter and nine months ended September 30, 2003, we
reclassified approximately $2.3 million and $6.3 million, respectively, of
other comprehensive losses to the Statement of Consolidated Operations,
principally as a result of our floating-to-fixed interest rate swaps.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | During the quarter and nine-month period ended September 30, 2002, we
reclassified approximately $2.6 million and $9.4 million, respectively, of
other comprehensive losses to the Statement of Consolidated Operations, principally as
a result of our floating-to-fixed interest rate swaps.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|12. |  | Shareholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Series A Mandatory Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Each share of Series A Mandatory Convertible Preferred Stock (Series A
Stock) is convertible into 2.083 shares of Common Stock, subject to
certain adjustments, at any time prior to August 15, 2005, and is entitled
to an annual dividend of $6.75, paid quarterly. On August 15, 2005, each
share of Series A Stock will automatically convert, subject to certain
adjustments, into between 2.083 and 2.5 shares of Common Stock depending
on the then-current market price of our Common Stock. Each share of
Series A Stock is non-voting and entitled to a liquidation preference of
$100 plus any accrued but unpaid dividends. There were 6 million
authorized shares and 2 million outstanding shares of Series A Stock at
September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                       




REVIEW BY INDEPENDENT ACCOUNTANTS

The financial information as of September 30, 2003, and for the
three-month and nine-month periods ended September 30, 2003 and 2002, included
in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by
PricewaterhouseCoopers LLP (PricewaterhouseCoopers), the Companys independent
accountants, in accordance with standards established by the American Institute
of Certified Public Accountants.
PricewaterhouseCoopers report is included in this quarterly report.

PricewaterhouseCoopers does not carry out any significant or additional
procedures beyond those that would have been necessary if its report had not
been included in this quarterly re-





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##### Table of Contents



-30-

port. Accordingly, such report is not a
report or part of a registration statement within the meaning of Sections 7
and 11 of the Securities Act of 1933 and the liability provisions of Section 11
of such Act do not apply.




REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Phelps Dodge Corporation

We have reviewed the accompanying consolidated balance sheet of Phelps Dodge
Corporation and its subsidiaries as of September 30, 2003, and the related
statement of consolidated operations for each of the three-month and nine-month
periods ended September 30, 2003 and 2002, the consolidated statement of cash
flows for the nine-month periods ended September 30, 2003 and 2002, and the
consolidated statement of shareholders equity for the nine-month period ended
September 30, 2003. This interim financial information is the responsibility
of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial information for it
to be in conformity with accounting principles generally accepted in the United
States of America.

As described in Note 2, the Company restated its consolidated interim financial
information for the three-month and nine-month periods ended September 30,
2002.

We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2002, and the related consolidated statements of operations, of cash flows
and of shareholders equity for the year then ended (not presented herein), and
in our report dated April 3, 2003 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet information as of December 31,
2002, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
October 27, 2003





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##### Table of Contents



-31-




Item 2. Managements Discussion and Analysis

The United States securities laws provide a safe harbor for certain
forward-looking statements. This quarterly report contains forward-looking
statements that express expectations of future events or results. All
statements based on future expectations rather than historical facts are
forward-looking statements that involve a number of risks and uncertainties,
and Phelps Dodge Corporation (the Company, which may be referred to as Phelps
Dodge, PD, we, us or ours) cannot give assurance that such statements will
prove to be correct. Our business consists of two divisions, Phelps Dodge
Mining Company (PDMC) and Phelps Dodge Industries (PDI). Refer to Managements
Discussion and Analysis in the Companys report on Form 10-K for the year ended
December 31, 2002, for a further discussion of such risks and uncertainties,
our operations, and our critical accounting policies. Additionally, refer to
Note 6, Accounting Standards, to our unaudited September 30, 2003, Consolidated
Financial Information for a discussion on the adoption of Statement of
Financial Accounting (SFAS) No. 143.

Restatements

As discussed in Note 2, Restatements, in this Form 10-Q for the quarter
ended September 30, 2003, certain accounting matters were identified in the
fourth quarter of 2002 that required restatement of our December 31, 2001 and
2000, Consolidated Financial Statements and our financial statements for the
quarterly periods ended March 31, 2001, through September 30, 2002. The
adjustments for the quarter and nine months ended September 30, 2002, decreased
operating loss by $6.9 million and $18.2 million, respectively, and decreased
net loss by $2.2 million, or 3 cents per common share, and $7.2 million, or 9
cents per common share, respectively.

Additionally, our presentation of reportable segment information for PDMC
for the quarter and nine months ended September 30, 2002, has been revised to
reflect additional segments.




RESULTS OF OPERATIONS

Consolidated Financial Results

(Unaudited; $ in millions except per share amounts)

|                                             |  |               |         |      |  |               |       |  
|-------------------------------------------- |  | ------------- | ------- | ---- |  | ------------- | ----- | -
|                                             |  | Third Quarter
|                                             |  |              
|                                             |  | 2003          |         | 2002
|                                             |  |               |         |     
|                                             |  |               |         |      |  | (As Restated)
|Sales and other operating revenues           |  | $             | 1,031.1 |      |  |               | 941.2 |  
|Operating income (loss)                      |  | $             | 46.8    |      |  |               | (12.0 | )
|Net loss                                     |  | $             | (0.3    | )    |  |               | (53.7 | )
|Net loss per common
share, basic and diluted |  | $             | (0.04   | )    |  |               | (0.64 | )

The Company had a consolidated net loss in the 2003 third quarter of $0.3
million, or 4 cents per common share, including a special, net loss of $9.0
million, or 10 cents per common share, after taxes. In the 2002 third quarter,
the consolidated net loss was $53.7 million, or 64 cents per common share,
including a special, net loss of $24.0 million, or 27 cents per common share,
after taxes.

The $53.4 million decrease in consolidated net loss in the 2003 third
quarter compared with the corresponding 2002 period primarily was due to higher
LME copper prices (approximately $57 million), early debt extinguishment costs
in the 2002 third quarter ($31.3 million), and a favorable change in special
items and provisions ($13.8 million); partially offset by a higher tax
provision ($43.3 million), resulting primarily from the absence of the effect
of 2002 tax legislation that permitted a five-year carryback of our 2001 and
2002 net operating losses, and slightly higher implied unit cost of copper
production (approximately $6 million).





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-32-

(Unaudited; $ in millions except per share amounts)

|                                                                                       |  |                   |         |      |  |               |         |  
|-------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---- |  | ------------- | ------- | -
|                                                                                       |  | Nine Months Ended
|                                                                                       |  | September 30,    
|                                                                                       |  |                  
|                                                                                       |  | 2003              |         | 2002
|                                                                                       |  |                   |         |     
|                                                                                       |  |                   |         |      |  | (As Restated)
|Sales and other operating
revenues                                                     |  | $                 | 2,971.3 |      |  |               | 2,826.5 |  
|Operating income (loss)                                                                |  | $                 | 92.7    |      |  |               | (9.5    | )
|                                                                                      
|Loss before cumulative effect
of accounting change                                     |  | $                 | (38.9   | )    |  |               | (89.9   | )
|Cumulative effect of
accounting change                                                 |  |                   | 8.4     |      |  |               | (22.9   | )
|                                                                                       |  |                   |         |      |  |               |         |  
|Net loss                                                                               |  | $                 | (30.5   | )    |  |               | (112.8  | )
|                                                                                       |  |                   |         |      |  |               |         |  
|Loss before cumulative effect of
accounting change per common
share, basic and diluted |  | $                 | (0.55   | )    |  |               | (1.15   | )
|Cumulative effect of
accounting change                                                 |  |                   | 0.09    |      |  |               | (0.28   | )
|                                                                                       |  |                   |         |      |  |               |         |  
|Net loss per common
share, basic and diluted                                           |  | $                 | (0.46   | )    |  |               | (1.43   | )
|                                                                                       |  |                   |         |      |  |               |         |  

The Company had a consolidated loss for the nine months ended September
30, 2003, of $30.5 million, or 46 cents per common share, including a special,
net gain of $5.0 million, or 6 cents per common share, after taxes. For the
nine months ended September 30, 2002, the consolidated loss was $112.8 million,
or $1.43 per common share, including a special, net loss of $20.5 million, or
25 cents per common share, after taxes.

The $82.3 million decrease in net loss for the nine months ended September
30, 2003, compared with the corresponding 2002 period primarily was due to
higher LME copper prices (approximately $91 million), a higher cumulative
income effect of accounting changes ($31.3 million) mostly due to the goodwill
impairment losses upon adoption of SFAS No. 142 in 2002, a favorable change in
pre-tax, special items and provisions ($47.7 million), lower net interest
expense ($33.9 million) and early debt extinguishment costs in 2002 ($31.3
million); partially offset by a higher tax provision ($129.7 million) resulting
primarily from the absence of the effect of 2002 tax legislation that permitted
a five-year carryback of the 2001 and 2002 net operating losses, and slightly
higher implied unit cost of copper production (approximately $9 million).

Special Items

Throughout Managements Discussion and Analysis there is disclosure and
discussion of what management believes to be special items. We view special
items as unpredictable and atypical of our operations in the period. We
believe consistent identification, disclosure and discussion of such items,
both favorable and unfavorable, provide additional information to assess the
quality of our performance and our earnings or losses. In addition, management
measures the performance of its reportable segments excluding special items.
This supplemental information is not a substitute for any U.S. generally
accepted accounting principles (GAAP) measure and should be evaluated within
the context of our U.S. GAAP results. Any supplemental information references
to earnings, losses or results excluding special items or before special items,
our non-GAAP measure of items, may not be comparable to similarly titled
measures reported by other companies.

Note: Supplemental Data

(Unaudited; $ in millions)

|                                                      |  |               |      |      |  |               |       |  
|----------------------------------------------------- |  | ------------- | ---- | ---- |  | ------------- | ----- | -
|                                                      |  | Third Quarter
|                                                      |  |              
|                                                      |  | 2003          |      | 2002
|                                                      |  |               |      |     
|                                                      |  |               |      |      |  | (As Restated)
|Special items, net of taxes                           |  | $             | (9.0 | )    |  |               | (24.0 | )
|Income (losses) excluding special
items (after taxes) |  | $             | 8.7  |      |  |               | (29.7 | )

(Unaudited; $ in millions)

|                                             |  |                   |       |      |  |               |       |  
|-------------------------------------------- |  | ----------------- | ----- | ---- |  | ------------- | ----- | -
|                                             |  | Nine Months Ended
|                                             |  | September 30,    
|                                             |  |                  
|                                             |  | 2003              |       | 2002
|                                             |  |                   |       |     
|                                             |  |                   |       |      |  | (As Restated)
|Special items, net of taxes                  |  | $                 | 5.0   |      |  |               | (20.5 | )
|Losses excluding special
items (after taxes) |  | $                 | (35.5 | )    |  |               | (92.3 | )





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##### Table of Contents



-33-

Note: Supplemental Data

The following schedules summarize the special items and provisions for the
three- and nine-month periods ended September 30, 2003 and 2002:

(Unaudited; gains (losses) in millions except per share amounts)

|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |       |  
|-------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------------------- | ---- | ------------------ | ---- | ------------------ | ---- | --------- | ---- | -------- | ----- | --------- | ----- | --------- | ----- | ----- | ---- | - | ----- | ----- | ---- | - | ----- | ----- | ----- | -
|                                             |                                                   |                                                                      |      | 2003 Third Quarter |      | 2002 Third Quarter
|                                             |                                                   |                                                                      |      |                    |      |                   
|                                             |                                                   |                                                                      |      | Pre-tax            |      | After-tax          |      | $/share   |      | Pre-tax  |       | After-tax |       | $/share  
|                                             |                                                   |                                                                      |      | Earnings           |      | Earnings           |      | After-tax |      | Earnings |       | Earnings  |       | After-tax
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |          
|Special items and provisions, net:           |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |      
|                                             | PDMC (see Business Segment disclosure)            |                                                                      | $    | (5.0               | )    |                    |      | (4.8      | )    |          |       | (0.05     | )     |           |       | (8.1  | )    |   |       | (7.0  | )    |   |       | (0.08 | )    
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|                                             | PDI (see Business Segment disclosure)             |                                                                      |      | 0.4                |      |                    |      | 0.4       |      |          |       |          |       |           |       | (21.4 | )    |   |       | (20.6 | )    |   |       | (0.23 | )    
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|                                             | Corporate and Other                              |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|                                             |                                                   | Environmental provisions, net                                        |      |                    | (3.7 | )                  |      |           | (3.5 | )        |       |           | (0.04 | )         |       |       | (0.5 | ) |       |       | (2.9 | ) |       |       | (0.03 | )
|                                             |                                                   | Environmental insurance recoveries, net                              |      |                    |     |                    |      |           |     |          |       |           |      |           |       |       | 6.8  |   |       |       | 6.1  |   |       |       | 0.07  |  
|                                             |                                                   | Historic Cyprus Amax lawsuit settlement                              |      |                    |     |                    |      |           |     |          |       |           |      |           |       |       |     |   |       |       | (0.6 | ) |       |       | (0.01 | )
|                                             |                                                   | Historic Cyprus Amax arbitration award with regard
to Plateau Mining |      |                    |     |                    |      |           |     |          |       |           |      |           |       |       |     |   |       |       | (0.5 | ) |       |       | (0.01 | )
|                                             |                                                   | Historic Cyprus Amax legal matter                                    |      |                    | (1.1 | )                  |      |           | (1.1 | )        |       |           | (0.01 | )         |       |       |     |   |       |       |     |   |       |       |      |  
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|                                             |                                                   |                                                                      | (4.8 | )                  |      |                    | (4.6 | )         |      |          | (0.05 | )         |       |           | 6.3   |       |      |   | 2.1   |       |      |   | 0.02  |      
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|                                             |                                                   |                                                                      | (9.4 | )                  |      |                    | (9.0 | )         |      |          | (0.10 | )         |       |           | (23.2 | )     |      |   | (25.5 | )     |      |   | (0.29 | )    
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|Early
debt extinguishment costs (see Note 6) |                                                   |                                                                      |     |                    |      |                    |     |           |      |          |      |           |       |           | (31.3 | )     |      |   | (26.6 | )     |      |   | (0.30 | )    
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|Benefit for taxes on income:                 |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |      
|                                             | Tax benefit for 2001 net operating loss carryback |                                                                      |      |                   |      |                    |      |          |      |          |       |          |       |           |       |      |      |   |       | 28.1  |      |   |       | 0.32  |      
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      
|                                             | Total                                             |                                                                      | $    | (9.4               | )    |                    |      | (9.0      | )    |          |       | (0.10     | )     |           |       | (54.5 | )    |   |       | (24.0 | )    |   |       | (0.27 | )    
|                                             |                                                   |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |       |      |   |       |       |      |   |       |       |      

(Unaudited; gains (losses) in millions except per share amounts)

|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |       |  
|--------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------------------------------------- | ---- | ------------------ | ---- | ------------------ | ---- | --------- | ---- | -------- | ----- | --------- | ----- | --------- | ----- | ------ | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                                    |                                                                 |                                                                      |      | Nine Months Ended  |      | Nine Months Ended 
|                                                    |                                                                 |                                                                      |      | September 30, 2003 |      | September 30, 2002
|                                                    |                                                                 |                                                                      |      |                    |      |                   
|                                                    |                                                                 |                                                                      |      | Pre-tax            |      | After-tax          |      | $/share   |      | Pre-tax  |       | After-tax |       | $/share  
|                                                    |                                                                 |                                                                      |      | Earnings           |      | Earnings           |      | After-tax |      | Earnings |       | Earnings  |       | After-tax
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |          
|Special items and provisions, net:                  |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |      
|                                                    | PDMC (see Business Segment disclosure)                          |                                                                      | $    | (5.5               | )    |                    |      | (5.2      | )    |          |       | (0.06     | )     |           |       | 26.6   |       |   |       | 25.3  |       |   |       | 0.30  |      
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    | PDI (see Business Segment disclosure)                           |                                                                      |      | 3.6                |      |                    |      | 2.8       |      |          |       | 0.03      |       |           |       | (21.4  | )     |   |       | (20.6 | )     |   |       | (0.25 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    | Corporate and Other                                            |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    |                                                                 | Environmental provisions, net                                        |      |                    | (7.1 | )                  |      |           | (6.8 | )        |       |           | (0.07 | )         |       |        | (12.6 | ) |       |       | (12.6 | ) |       |       | (0.15 | )
|                                                    |                                                                 | Environmental insurance recoveries, net                              |      |                    | 0.5  |                    |      |           | 0.5  |          |       |           | 0.01  |           |       |        | 15.4  |   |       |       | 13.0  |   |       |       | 0.16  |  
|                                                    |                                                                 | Historic Cyprus Amax lawsuit settlement                              |      |                    |     |                    |      |           |     |          |       |           |      |           |       |        | (11.2 | ) |       |       | (9.5  | ) |       |       | (0.12 | )
|                                                    |                                                                 | Historic Cyprus Amax arbitration award with regard
to Plateau Mining |      |                    |     |                    |      |           |     |          |       |           |      |           |       |        | (46.5 | ) |       |       | (45.0 | ) |       |       | (0.54 | )
|                                                    |                                                                 | Historic Cyprus Amax legal matter                                    |      |                    | (1.1 | )                  |      |           | (1.1 | )        |       |           | (0.01 | )         |       |        |      |   |       |       |      |   |       |       |      |  
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    |                                                                 |                                                                      | (7.7 | )                  |      |                    | (7.4 | )         |      |          | (0.07 | )         |       |           | (54.9 | )      |       |   | (54.1 | )     |       |   | (0.65 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    |                                                                 |                                                                      | (9.6 | )                  |      |                    | (9.8 | )         |      |          | (0.10 | )         |       |           | (49.7 | )      |       |   | (49.4 | )     |       |   | (0.60 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|Early
debt extinguishment costs (see Note 6)        |                                                                 |                                                                      |     |                    |      |                    |     |           |      |          |      |           |       |           | (31.3 | )      |       |   | (26.6 | )     |       |   | (0.32 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|Miscellaneous income (expense), net:                |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |      
|                                                    | Cost investment write-downs                                     |                                                                      |      |                   |      |                    |      |          |      |          |       |          |       |           |       | (1.2   | )     |   |       | (1.2  | )     |   |       | (0.01 | )    
|                                                    | Gain on sale of cost investment                                 |                                                                      |      | 6.4                |      |                    |      | 6.4       |      |          |       | 0.07      |       |           |       |       |       |   |       |      |       |   |       |      |      
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    |                                                                 |                                                                      | 6.4  |                    |      |                    | 6.4  |           |      |          | 0.07  |           |       |           | (1.2  | )      |       |   | (1.2  | )     |       |   | (0.01 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|Benefit for taxes on income:                        |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |      
|                                                    | Release of taxes provided with regard to Plateau Mining         |                                                                      |      |                   |      |                    |      |          |      |          |       |          |       |           |       |       |       |   |       | 13.0  |       |   |       | 0.16  |      
|                                                    | Tax benefit for 2001 net operating loss carryback (see Note 10) |                                                                      |      |                   |      |                    |      |          |      |          |       |          |       |           |       |       |       |   |       | 66.6  |       |   |       | 0.80  |      
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    |                                                                 |                                                                      |     |                    |      |                    |     |           |      |          |      |           |       |           |      |        |       |   | 79.6  |       |       |   | 0.96  |      
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|Cumulative effect of accounting change (see Note 6) |                                                                 |                                                                      | 9.7  |                    |      |                    | 8.4  |           |      |          | 0.09  |           |       |           | (33.0 | )      |       |   | (22.9 | )     |       |   | (0.28 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      
|                                                    | Total                                                           |                                                                      | $    | 6.5                |      |                    |      | 5.0       |      |          |       | 0.06      |       |           |       | (115.2 | )     |   |       | (20.5 | )     |   |       | (0.25 | )    
|                                                    |                                                                 |                                                                      |      |                    |      |                    |      |           |      |          |       |           |       |           |       |        |       |   |       |       |       |   |       |       |      





---



##### Table of Contents



-34-



| |  | Quest for ZeroOperational Improvement Program
| |  | ---------------------------------------------

Phelps Dodge announced in October 2001 that it was commencing Quest for
Zero (QFZ), a comprehensive, lean-production program, designed to, among other
things, improve operating income by a targeted $250 million annually. Quest
for Zeroencompasses both the October 2001 program and the $150 million cost
improvement program announced in May 2001. The Companys goal is to achieve
these combined annual operating income improvements of $400 million by the end
of 2003 when compared with the results that were then expected for 2001.

In order to achieve the full $400 million target, PDMC chartered business
improvement teams to drive performance improvement projects and best practices.
The elimination of variance and waste are key factors in this process, coupled
with the rapid transfer of best practices to all business units. On a
quarterly basis, we document improvement successes, failures and potential
projects yet to be implemented. New project ideas are generated at internal
conferences where statistical analysis tools are utilized on current
performance data to identify improvement opportunities. Improvement projects
are prioritized and implemented accordingly. Key elements of the plan going
forward include six-sigma quality programs, technology innovations, global
procurement strategies and improved operating practices.

During the 2003 third quarter, we achieved $84 million (an annual run rate
of $335 million) in improvements, bringing total improvements in the nine
quarters since the program was announced to $505 million.

We remain determined to drive toward our stretch goal of an implied
production cost of 60 cents per pound. We continue to experience challenges
that come with multi-year improvement projects as we begin to tackle more
difficult initiatives; unforeseen costs including higher energy, pension and
medical costs, and higher administrative costs and professional fees; and our
Companys decision to emphasize growth-oriented projects. We expect to achieve
2003 fourth quarter QFZimprovements of $90 million to $100 million, equating
to an annualized run-rate of $360 million to $400 million.

The following is a summary of improvement dollars:

(Unaudited; $ in millions)

|                        |                      |   |               |    |      |  |    |    | 
|----------------------- | -------------------- | - | ------------- | -- | ---- |  | -- | -- | 
|                        |                      |   | Third Quarter
|                        |                      |   |              
|                        |                      |   | 2003          |    | 2002
|                        |                      |   |               |    |     
|U.S. Mining Operations* |                      | $ | 52            |    |      |  | 31 |   
|South American Mines**  |                      |   | 17            |    |      |  | 11 |   
|Primary Molybdenum      |                      |   | 3             |    |      |  | 4  |   
|                        |                      |   |               |    |      |  |    |   
|                        | Total PDMC           |   |               | 72 |      |  |    | 46 | 
|                        |                      |   |               |    |      |  |    |   
|Specialty Chemicals     |                      |   | 5             |    |      |  | 1  |   
|Wire and Cable          |                      |   | 7             |    |      |  | 5  |   
|                        |                      |   |               |    |      |  |    |   
|                        | Total PDI            |   |               | 12 |      |  |    | 6  | 
|                        |                      |   |               |    |      |  |    |   
|                        | Total Quest for Zero |   | $             | 84 |      |  |    | 52 | 
|                        |                      |   |               |    |      |  |    |   

(Unaudited; $ in millions)

|                        |                      |   |                   |     |      |  |    |     | 
|----------------------- | -------------------- | - | ----------------- | --- | ---- |  | -- | --- | 
|                        |                      |   | Nine Months Ended
|                        |                      |   | September 30,    
|                        |                      |   |                  
|                        |                      |   | 2003              |     | 2002
|                        |                      |   |                   |     |     
|U.S. Mining Operations* |                      | $ | 155               |     |      |  | 96 |    
|South American Mines**  |                      |   | 44                |     |      |  | 29 |    
|Primary Molybdenum      |                      |   | 10                |     |      |  | 8  |    
|                        |                      |   |                   |     |      |  |    |    
|                        | Total PDMC           |   |                   | 209 |      |  |    | 133 | 
|                        |                      |   |                   |     |      |  |    |    
|Specialty Chemicals     |                      |   | 14                |     |      |  | 6  |    
|Wire and Cable          |                      |   | 16                |     |      |  | 10 |    
|                        |                      |   |                   |     |      |  |    |    
|                        | Total PDI            |   |                   | 30  |      |  |    | 16  | 
|                        |                      |   |                   |     |      |  |    |    
|                        | Total Quest for Zero |   | $                 | 239 |      |  |    | 149 | 
|                        |                      |   |                   |     |      |  |    |    



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     

Business Divisions

Results for 2003 and 2002 can be meaningfully compared by separate
reference to our reporting divisions, PDMC and PDI. PDMC is a business
division that includes our worldwide copper operations from mining through rod
production, marketing and sales; molybdenum operations from mining through
manufacturing, marketing and sales; other mining operations and investments;
and worldwide mineral exploration and development programs. PDMC comprises 11
reportable segments. PDI, our manufacturing division, produces engineered
products principally for the global energy, telecommunications,
transpor-





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##### Table of Contents



-35-

tation and specialty chemical sectors.
PDI includes our Specialty Chemicals segment and our Wire and Cable
segment. Significant events and transactions have occurred within each segment
that, as indicated in the separate discussions presented below, are material to
an understanding of the particular years results and to a comparison with
results of other periods.




RESULTS OF 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 reportable 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, some of these produce gold and silver, and the
Bagdad and Sierrita mines also produce molybdenum 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 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 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.

(Unaudited; $ in millions except per pound amounts)

|                                                             |                                        |   |               |       |      |  |               |       | 
|------------------------------------------------------------ | -------------------------------------- | - | ------------- | ----- | ---- |  | ------------- | ----- | 
|                                                             |                                        |   | Third Quarter
|                                                             |                                        |   |              
|                                                             |                                        |   | 2003          |       | 2002
|                                                             |                                        |   |               |       |     
|                                                             |                                        |   |               |       |      |  | (As Restated)
|Sales and other operating revenues
to unaffiliated customers |                                        | $ | 704.1         |       |      |  | 629.3         |      
|Operating income                                             |                                        | $ | 59.6          |       |      |  | 5.7           |      
|                                                            
|Copper production (thousand short tons):                     |                                        |   |               |       |      |  |               |      
|                                                             | Total production                       |   |               | 329.2 |      |  |               | 312.8 | 
|                                                             | Less minority participants
shares (A) |   |               | 62.9  |      |  |               | 58.6  | 
|                                                             |                                        |   |               |       |      |  |               |      
|                                                             | Net Phelps Dodge share                 |   |               | 266.3 |      |  |               | 254.2 | 
|                                                             |                                        |   |               |       |      |  |               |      
|Copper sales (thousand short tons):                          |                                        |   |               |       |      |  |               |      
|                                                             | Net Phelps Dodge share
from own mines  |   |               | 268.6 |      |  |               | 267.4 | 
|                                                             | Purchased copper                       |   |               | 90.9  |      |  |               | 113.2 | 
|                                                             |                                        |   |               |       |      |  |               |      
|                                                             | Total copper sales                     |   |               | 359.5 |      |  |               | 380.6 | 
|                                                             |                                        |   |               |       |      |  |               |      
|LME average spot copper price
per pound  cathodes           |                                        | $ | 0.795         |       |      |  | 0.689         |      
|COMEX average spot copper price
per pound  cathodes         |                                        | $ | 0.800         |       |      |  | 0.693         |      
|Implied unit cost of
copper production  full                |                                        | $ | 0.675         |       |      |  | 0.663         |      
|Implied unit cost of
copper production  cash                |                                        | $ | 0.518         |       |      |  | 0.500         |      
|                                                            
|Molybdenum production (million pounds)                       |                                        |   | 13.1          |       |      |  | 12.1          |      
|Molybdenum sales (million pounds):                           |                                        |   |               |       |      |  |               |      
|                                                             | Net Phelps Dodge share
from own mines  |   |               | 12.5  |      |  |               | 10.8  | 
|                                                             | Purchased molybdenum                   |   |               | 2.6   |      |  |               | 1.7   | 
|                                                             |                                        |   |               |       |      |  |               |      
|                                                             | Total molybdenum sales                 |   |               | 15.1  |      |  |               | 12.5  | 
|                                                             |                                        |   |               |       |      |  |               |      
|Metals Week:                                                 |                                        |   |               |       |      |  |               |      
|Molybdenum oxide price per pound                             |                                        | $ | 5.67          |       |      |  | 4.71          |      





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##### Table of Contents



-36-

(Unaudited; $ in millions except per pound amounts)

|                                                             |                                        |   |                   |         |      |  |               |         | 
|------------------------------------------------------------ | -------------------------------------- | - | ----------------- | ------- | ---- |  | ------------- | ------- | 
|                                                             |                                        |   | Nine Months Ended
|                                                             |                                        |   | September 30,    
|                                                             |                                        |   |                  
|                                                             |                                        |   | 2003              |         | 2002
|                                                             |                                        |   |                   |         |     
|                                                             |                                        |   |                   |         |      |  | (As Restated)
|Sales and other operating revenues
to unaffiliated customers |                                        | $ | 2,000.7           |         |      |  | 1,885.5       |        
|Operating income                                             |                                        | $ | 121.1             |         |      |  | 71.2          |        
|                                                            
|Copper production (thousand short tons):                     |                                        |   |                   |         |      |  |               |        
|                                                             | Total production                       |   |                   | 965.2   |      |  |               | 951.3   | 
|                                                             | Less minority participants
shares (A) |   |                   | 179.2   |      |  |               | 185.3   | 
|                                                             |                                        |   |                   |         |      |  |               |        
|                                                             | Net Phelps Dodge share                 |   |                   | 786.0   |      |  |               | 766.0   | 
|                                                             |                                        |   |                   |         |      |  |               |        
|Copper sales (thousand short tons):                          |                                        |   |                   |         |      |  |               |        
|                                                             | Net Phelps Dodge share
from own mines  |   |                   | 798.9   |      |  |               | 800.6   | 
|                                                             | Purchased copper                       |   |                   | 269.3   |      |  |               | 333.7   | 
|                                                             |                                        |   |                   |         |      |  |               |        
|                                                             | Total copper sales                     |   |                   | 1,068.2 |      |  |               | 1,134.3 | 
|                                                             |                                        |   |                   |         |      |  |               |        
|LME average spot copper price
per pound  cathodes           |                                        | $ | 0.765             |         |      |  | 0.708         |        
|COMEX average spot copper price
per pound  cathodes         |                                        | $ | 0.769             |         |      |  | 0.719         |        
|Implied unit cost of
copper production  full                |                                        | $ | 0.686             |         |      |  | 0.680         |        
|Implied unit cost of
copper production  cash                |                                        | $ | 0.530             |         |      |  | 0.516         |        
|                                                            
|Molybdenum production (million
pounds)                       |                                        |   | 37.7              |         |      |  | 33.1          |        
|Molybdenum sales (million pounds):                           |                                        |   |                   |         |      |  |               |        
|                                                             | Net Phelps Dodge share
from own mines  |   |                   | 39.8    |      |  |               | 34.9    | 
|                                                             | Purchased molybdenum                   |   |                   | 6.2     |      |  |               | 7.1     | 
|                                                             |                                        |   |                   |         |      |  |               |        
|                                                             | Total molybdenum sales                 |   |                   | 46.0    |      |  |               | 42.0    | 
|                                                             |                                        |   |                   |         |      |  |               |        
|Metals Week:                                                 |                                        |   |                   |         |      |  |               |        
|Molybdenum oxide price per pound                             |                                        | $ | 4.98              |         |      |  | 3.94          |        



|(A) |  | Minority participant interests include (i) a 15 percent undivided
interest in Morenci, Arizona, copper mining complex held by Sumitomo Metal
Mining Arizona, Inc., (ii) a one-third partnership interest in Chino Mines
Company in New Mexico held by Heisei Minerals Corporation  see additional
discussion on PDCs agreement to acquire Heiseis share on page 52, (iii)
a 20 percent partnership interest in Candelaria in Chile held by SMMA
Candelaria, Inc., a jointly owned indirect subsidiary of Sumitomo Metal
Mining Co., Ltd., and Sumitomo Corporation, and (iv) a 49 percent
partnership interest in the El Abra copper mining operation in Chile held
by Corporación Nacional del Cobre de Chile (CODELCO).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note: Supplemental Data

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., London Metal Exchange
average spot) for a given period versus PDMCs operating income (loss) for the
same period.

There is no established standard for calculating unit production costs in
the copper industry. PDMCs implied unit production cost 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 (as disclosed in
the table above). 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 to the market price of copper to render
an implied cost of copper production. Following is the calculation of implied
unit cost of copper production for the quarters and nine months ended September
30, 2003 and 2002:

(Unaudited; $ in millions except per pound amounts)

|                                                   |                              |   |               |      |      |  |               |      |  
|-------------------------------------------------- | ---------------------------- | - | ------------- | ---- | ---- |  | ------------- | ---- | -
|                                                   |                              |   | Third Quarter
|                                                   |                              |   |              
|                                                   |                              |   | 2003          |      | 2002
|                                                   |                              |   |               |      |     
|                                                   |                              |   |               |      |      |  | (As Restated)
|PDMC implied unit cost of
copper production        |                              |   |               |      |      |  |               |     
|                                                   | Operating income             |   | $             | 59.6 |      |  |               | 5.7  |  
|                                                   | Less special operating items |   |               | (5.0 | )    |  |               | (8.1 | )
|                                                   |                              |   |               |      |      |  |               |     
|Operating income excluding
special items           |                              | $ | 64.6          |      |      |  | 13.8          |     
|                                                   |                              |   |               |      |      |  |               |     
|Copper sales from own mines 
million pounds       |                              |   | 537.2         |      |      |  | 534.9         |     
|Operating margin  per
pound of copper sold        |                              | $ | 0.120         |      |      |  | 0.026         |     
|LME average spot copper price
per pound  cathodes |                              | $ | 0.795         |      |      |  | 0.689         |     
|Implied unit cost of copper
production per pound   |                              | $ | 0.675         |      |      |  | 0.663         |     





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##### Table of Contents



-37-

(Unaudited; $ in millions except per pound amounts)

|                                                   |                              |   |                   |       |      |  |               |      | 
|-------------------------------------------------- | ---------------------------- | - | ----------------- | ----- | ---- |  | ------------- | ---- | 
|                                                   |                              |   | Nine Months Ended
|                                                   |                              |   | September 30,    
|                                                   |                              |   |                  
|                                                   |                              |   | 2003              |       | 2002
|                                                   |                              |   |                   |       |     
|                                                   |                              |   |                   |       |      |  | (As Restated)
|PDMC implied unit cost of
copper production        |                              |   |                   |       |      |  |               |     
|                                                   | Operating income             |   | $                 | 121.1 |      |  |               | 71.2 | 
|                                                   | Less special operating items |   |                   | (5.5  | )    |  |               | 26.6 | 
|                                                   |                              |   |                   |       |      |  |               |     
|Operating income excluding
special items           |                              | $ | 126.6             |       |      |  | 44.6          |     
|                                                   |                              |   |                   |       |      |  |               |     
|Copper sales from own mines 
million pounds       |                              |   | 1,597.9           |       |      |  | 1,601.3       |     
|Operating margin  per
pound of copper sold        |                              | $ | 0.079             |       |      |  | 0.028         |     
|LME average spot copper price
per pound  cathodes |                              | $ | 0.765             |       |      |  | 0.708         |     
|Implied unit cost of copper
production per pound   |                              | $ | 0.686             |       |      |  | 0.680         |     

Note: Our measure of implied unit cost of copper production may not be
comparable to similarly titled measures reported by other companies.

Total PDMC Division  Sales

PDMCs sales and other operating revenues to unaffiliated customers
increased $74.8 million, or 12 percent, in the 2003 third quarter compared with
the 2002 third quarter. The increase reflected higher average copper prices
(approximately $74 million), higher average molybdenum prices (approximately $3
million), higher sales volumes of molybdenum (approximately $15 million) and
higher precious metals sales (approximately $5 million); partially offset by
lower copper sales volumes (approximately $21 million) primarily reflecting
decreased purchases and sales of third-party copper.

PDMCs sales and other operating revenues to unaffiliated customers
increased $115.2 million, or 6 percent, in the first nine months of 2003
compared with the first nine months of 2002. The increase reflected higher
average copper prices (approximately $113 million), higher average molybdenum
prices (approximately $45 million), higher sales volumes of molybdenum
(approximately $18 million) and higher precious metals sales (approximately $5
million); partially offset by lower copper sales volumes (approximately $66
million) primarily reflecting decreased purchases and sales of third-party
copper.

Total PDMC  Operating Income (Loss)

PDMC reported operating income of $59.6 million in the 2003 third quarter,
including a special, net pre-tax loss of $5.0 million, compared with operating
income of $5.7 million in the 2002 third quarter, including a special, net
pre-tax loss of $8.1 million. The increase in operating income primarily
reflected higher copper prices (approximately $57 million) and lower pre-tax
special losses ($3.1 million), partially offset by a slightly higher implied
unit cost of copper production (approximately $6 million).

PDMC reported operating income of $121.1 million in the first nine months
of 2003, including a special, net pre-tax loss of $5.5 million, compared with
operating income of $71.2 million in the first nine months of 2002, including a
special, net pre-tax gain of $26.6 million. The increase in operating income
primarily reflected higher copper prices (approximately $91 million), partially
offset by lower pre-tax special gains ($32.1 million) and a slightly higher
implied unit cost of copper production (approximately $9 million).

The New York Commodity Exchange (COMEX) spot price per pound of copper
cathode, primarily upon which we base our U.S. sales, averaged 80.0 cents and
69.3 cents in the third quarters of 2003 and 2002, respectively, and 76.9 cents
and 71.9 cents for the first nine months of 2003 and 2002, respectively. The
London Metal Exchange (LME) spot price per pound of copper cathode, primarily
upon which we base our international sales, averaged 79.5 cents and 68.9 cents
in the third quarters of 2003 and 2002, respectively, and 76.5 cents and 70.8
cents for the first nine months of 2003 and 2002, respectively.

The implied full unit cost of copper production for the third quarter of
2003 increased approximately 1 cent per pound compared with the third quarter
of 2002. The cash unit cost of copper production for the third quarter of 2003
increased approximately 2 cents per pound compared with the third quarter of
2002. The increase was primarily due to unfavorable stockpile and inventory
changes (approximately 2 cents per pound), higher energy costs (approximately 1
cent per pound) and higher exploration expenses (approximately 1 cent per
pound); partially offset by lower depreciation and closure expense
(approximately 1 cent per pound) and a favorable finished goods inventory
change (approximately 1 cent per pound).





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##### Table of Contents



-38-

The implied full and cash unit cost of copper production for the first
nine months of 2003 each increased approximately 1 cent per pound compared with
the corresponding 2002 period. The increase was primarily due to unfavorable
stockpile and inventory changes (approximately 2 cents per pound) and higher
energy costs (approximately 2 cents per pound); partially offset by lower
closure expense (approximately 1 cent per pound) and higher molybdenum prices
(approximately 2 cents per pound).

Note: Supplemental Data

The following table summarizes PDMCs special items for the quarters and
nine months ended September 30, 2003 and 2002, and the resultant earnings
(losses) excluding these special items.

(Unaudited; $ in millions)

|                                                         |                         |  |               |      |      |  |               |      |  
|-------------------------------------------------------- | ----------------------- |  | ------------- | ---- | ---- |  | ------------- | ---- | -
|                                                         |                         |  | Third Quarter
|                                                         |                         |  |              
|                                                         |                         |  | 2003          |      | 2002
|                                                         |                         |  |               |      |     
|                                                         |                         |  |               |      |      |  | (As Restated)
|Special, pre-tax items:                                  |                         |  |               |      |      |  |               |     
|                                                         | U.S. Mining Operations* |  | $             | (5.0 | )    |  |               | (8.1 | )
|                                                         | South American Mines**  |  |               |     |      |  |               |     |  
|                                                         | Primary Molybdenum      |  |               |     |      |  |               |     |  
|                                                         |                         |  |               |      |      |  |               |      |  
|                                                         |                         |  | (5.0          | )    |      |  | (8.1          | )   
|                                                         |                         |  |               |      |      |  |               |      |  
|Segment operating income (loss)
excluding special items: |                         |  |               |      |      |  |               |     
|                                                         | U.S. Mining Operations* |  | $             | 24.3 |      |  |               | (3.8 | )
|                                                         | South American Mines**  |  |               | 40.7 |      |  |               | 6.9  |  
|                                                         | Primary Molybdenum      |  |               | (0.4 | )    |  |               | 10.7 |  
|                                                         |                         |  |               |      |      |  |               |      |  
|                                                         |                         |  | 64.6          |      |      |  | 13.8          |     
|                                                         |                         |  |               |      |      |  |               |      |  

(Unaudited; $ in millions)

|                                                         |                         |  |                   |       |      |  |               |       |  
|-------------------------------------------------------- | ----------------------- |  | ----------------- | ----- | ---- |  | ------------- | ----- | -
|                                                         |                         |  | Nine Months Ended
|                                                         |                         |  | September 30,    
|                                                         |                         |  |                  
|                                                         |                         |  | 2003              |       | 2002
|                                                         |                         |  |                   |       |     
|                                                         |                         |  |                   |       |      |  | (As Restated)
|Special, pre-tax items:                                  |                         |  |                   |       |      |  |               |      
|                                                         | U.S. Mining Operations* |  | $                 | (5.5  | )    |  |               | 26.6  |  
|                                                         | South American Mines**  |  |                   |      |      |  |               |      |  
|                                                         | Primary Molybdenum      |  |                   |      |      |  |               |      |  
|                                                         |                         |  |                   |       |      |  |               |       |  
|                                                         |                         |  | (5.5              | )     |      |  | 26.6          |      
|                                                         |                         |  |                   |       |      |  |               |       |  
|Segment operating income (loss)
excluding special items: |                         |  |                   |       |      |  |               |      
|                                                         | U.S. Mining Operations* |  | $                 | 22.2  |      |  |               | (20.9 | )
|                                                         | South American Mines**  |  |                   | 104.3 |      |  |               | 54.6  |  
|                                                         | Primary Molybdenum      |  |                   | 0.1   |      |  |               | 10.9  |  
|                                                         |                         |  |                   |       |      |  |               |       |  
|                                                         |                         |  | 126.6             |       |      |  | 44.6          |      
|                                                         |                         |  |                   |       |      |  |               |       |  



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

Note: Supplemental Data

Special, pre-tax items and provisions in operating income (loss) were as
follows:

(Unaudited; $ in millions)

|                              |  |                    |      |          |  |         |   |  |  |  |   | 
|----------------------------- |  | ------------------ | ---- | -------- |  | ------- | - |  |  |  | - | 
|                              |  | Third Quarter 2003
|                              |  |                   
|                              |  | U.S.               |      | South    |  | Primary
|                              |  | Mining             |      | American |  | Molyb- 
|                              |  | Operations         |      | Mines    |  | denum  
|                              |  |                    |      |          |  |        
|Environmental
provisions, net |  | $                  | (5.0 | )        |  |         |  |  |  |  |  | 
|                              |  |                    |      |          |  |         |   |  |  |  |   | 

(Unaudited; $ in millions)

|                              |  |                    |      |          |  |         |   |  |  |  |   | 
|----------------------------- |  | ------------------ | ---- | -------- |  | ------- | - |  |  |  | - | 
|                              |  | Nine Months Ended 
|                              |  | September 30, 2003
|                              |  |                   
|                              |  | U.S.               |      | South    |  | Primary
|                              |  | Mining             |      | American |  | Molyb- 
|                              |  | Operations         |      | Mines    |  | denum  
|                              |  |                    |      |          |  |        
|Environmental
provisions, net |  | $                  | (5.5 | )        |  |         |  |  |  |  |  | 
|                              |  |                    |      |          |  |         |   |  |  |  |   | 





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##### Table of Contents



-39-

(Unaudited; $ in millions)

|                                        |                                                               |   |      |                    |   |          |   |         |  |  |   |   |  | 
|--------------------------------------- | ------------------------------------------------------------- | - | ---- | ------------------ | - | -------- | - | ------- |  |  | - | - |  | 
|                                        |                                                               |   |      | Third Quarter 2002
|                                        |                                                               |   |      |                   
|                                        |                                                               |   |      | U.S.               |   | South    |   | Primary
|                                        |                                                               |   |      | Mining             |   | American |   | Molyb- 
|                                        |                                                               |   |      | Operations         |   | Mines    |   | denum  
|                                        |                                                               |   |      |                    |   |          |   |        
|Environmental
provisions, net           |                                                               | $ | (2.5 | )                  |   |          |  |         |  |  |  |  
|October 2001 restructuring:             |                                                               |   |      |                    |   |          |   |         |  |  |   |  
|                                        | Reassessment of
employee activities
and take-or-pay contracts |   |      | 4.4                |   |          |   |        |  |  |   |  | 
|                                        | Additional retirement
benefits                                |   |      | (6.4               | ) |          |   |        |  |  |   |  | 
|Environmental insurance
recoveries, net |                                                               |   | (3.6 | )                  |   |          |  |         |  |  |  |  
|                                        |                                                               |   |      |                    |   |          |   |         |  |  |   |  
|                                        |                                                               | $ | (8.1 | )                  |   |          |  |         |  |  |  |  
|                                        |                                                               |   |      |                    |   |          |   |         |  |  |   |  

(Unaudited; $ in millions)

|                                        |                                                               |   |      |      |                    |  |          |   |         |  |   |   |  |  | 
|--------------------------------------- | ------------------------------------------------------------- | - | ---- | ---- | ------------------ |  | -------- | - | ------- |  | - | - |  |  | 
|                                        |                                                               |   |      |      | Nine Months Ended 
|                                        |                                                               |   |      |      | September 30, 2002
|                                        |                                                               |   |      |      |                   
|                                        |                                                               |   |      |      | U.S.               |  | South    |   | Primary
|                                        |                                                               |   |      |      | Mining             |  | American |   | Molyb- 
|                                        |                                                               |   |      |      | Operations         |  | Mines    |   | denum  
|                                        |                                                               |   |      |      |                    |  |          |   |        
|Environmental
provisions, net           |                                                               | $ | (2.5 | )    |                    |  |         |   |         |  |  |  
|October 2001 restructuring:             |                                                               |   |      |      |                    |  |          |   |         |  |   |  
|                                        | Reassessment of
employee activities
and take-or-pay contracts |   |      | 4.4  |                    |  |          |  |         |  |   |  | 
|                                        | Additional retirement
benefits                                |   |      | (6.4 | )                  |  |          |  |         |  |   |  | 
|Environmental insurance
recoveries, net |                                                               |   | 8.5  |      |                    |  |         |   |         |  |  |  
|Sale of non-core real
estate            |                                                               |   | 22.6 |      |                    |  |         |   |         |  |  |  
|                                        |                                                               |   |      |      |                    |  |          |   |         |  |   |  
|                                        |                                                               | $ | 26.6 |      |                    |  |         |   |         |  |  |  
|                                        |                                                               |   |      |      |                    |  |          |   |         |  |   |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

PDMC Results by Reportable Segments

The following tables summarize, on a segment basis, production and sales
statistics, operating income (loss), and special items and provisions for the
third quarters and first nine months of 2003 and 2002. Our presentation of
reportable segment information for PDMC for the quarter and nine months ended
September 30, 2002, has been revised to reflect comparative segments.



---



##### Table of Contents



-40-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|---------------------------------------- | ------------------------------------- | - | ---------- | ----- | -------- |  | ------- | ---- | ------ |  | ------ | --- | -------- |  | ---- | ---- |  |  | ---- | ---- |  |  | ---- | ----- | 
|                                         |                                       |   | U.S. Mines
|                                         |                                       |   |           
|                                         |                                       |   |            |       |          |  | Bagdad/ |      | Miami/ |  | Chino/ |     |          |  |      |      |  |  |     
|                                         |                                       |   | Morenci    |       | Sierrita |  | Bisbee  |      | Cobre  |  | Tyrone |     | Subtotal
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |         
|Third Quarter 2003                       |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|Copper production (thousand short tons): |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|                                         | Total production                      |   |            | 108.6 |          |  |         | 46.9 |        |  |        | 5.1 |          |  |      | 10.1 |  |  |      | 13.5 |  |  |      | 184.2 | 
|                                         | Less minority participants shares    |   |            | 16.3  |          |  |         |     |        |  |        |    |          |  |      | 3.4  |  |  |      |     |  |  |      | 19.7  | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|                                         | Net Phelps Dodge share                |   |            | 92.3  |          |  |         | 46.9 |        |  |        | 5.1 |          |  |      | 6.7  |  |  |      | 13.5 |  |  |      | 164.5 | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|Copper sales (thousand short tons):      |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|                                         | Net Phelps Dodge share from own mines |   |            | 92.3  |          |  |         | 46.0 |        |  |        | 4.9 |          |  |      | 6.7  |  |  |      | 13.5 |  |  |      | 163.4 | 
|                                         | Purchased copper                      |   |            |      |          |  |         |     |        |  |        |    |          |  |      |     |  |  |      |     |  |  |      |      | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|                                         | Total copper sales                    |   |            | 92.3  |          |  |         | 46.0 |        |  |        | 4.9 |          |  |      | 6.7  |  |  |      | 13.5 |  |  |      | 163.4 | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|($ in millions)                          |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|Operating income (loss)                  |                                       | $ | 19.8       |       |          |  | 23.7    |      |        |  | (0.7   | )   |          |  | (4.9 | )    |  |  | (5.5 | )    |  |  | 32.4 |      
|Special items and provisions             |                                       | $ | (1.1       | )     |          |  |        |      |        |  |       |     |          |  | (1.3 | )    |  |  | (0.5 | )    |  |  | (2.9 | )    
|                                        
|Third Quarter 2002 (as restated)         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|Copper production (thousand short tons): |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|                                         | Total production                      |   |            | 106.0 |          |  |         | 39.2 |        |  |        | 2.3 |          |  |      | 11.9 |  |  |      | 18.7 |  |  |      | 178.1 | 
|                                         | Less minority participants shares    |   |            | 15.9  |          |  |         |     |        |  |        |    |          |  |      | 4.0  |  |  |      |     |  |  |      | 19.9  | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|                                         | Net Phelps Dodge share                |   |            | 90.1  |          |  |         | 39.2 |        |  |        | 2.3 |          |  |      | 7.9  |  |  |      | 18.7 |  |  |      | 158.2 | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|Copper sales (thousand short tons):      |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|                                         | Net Phelps Dodge share from own mines |   |            | 90.1  |          |  |         | 50.4 |        |  |        | 5.4 |          |  |      | 7.9  |  |  |      | 18.6 |  |  |      | 172.4 | 
|                                         | Purchased copper                      |   |            |      |          |  |         |     |        |  |        |    |          |  |      |     |  |  |      |     |  |  |      |      | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|                                         | Total copper sales                    |   |            | 90.1  |          |  |         | 50.4 |        |  |        | 5.4 |          |  |      | 7.9  |  |  |      | 18.6 |  |  |      | 172.4 | 
|                                         |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |       | 
|($ in millions)                          |                                       |   |            |       |          |  |         |      |        |  |        |     |          |  |      |      |  |  |      |      |  |  |      |      
|Operating income (loss)                  |                                       | $ | 0.7        |       |          |  | 8.7     |      |        |  | (5.9   | )   |          |  | (2.1 | )    |  |  | 0.9  |      |  |  | 2.3  |      
|Special items and provisions             |                                       | $ | (0.5       | )     |          |  |        |      |        |  | (2.3   | )   |          |  | (2.5 | )    |  |  |     |      |  |  | (5.3 | )    

Refer to segment discussion on pages 46 through 51.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 46 and 47 for
further discussion.)





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##### Table of Contents



-41-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|---------------------------------------- | ------------------------------------- | - | -------------------- | ---- | ----------- |  | ------- | ---- | -------- |  | ---- | ---- |  |  | ---- | ----- | 
|                                         |                                       |   | South American Mines
|                                         |                                       |   |                     
|                                         |                                       |   | Candelaria           |      | Cerro Verde |  | El Abra |      | Subtotal
|                                         |                                       |   |                      |      |             |  |         |      |         
|Third Quarter 2003                       |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|Copper production (thousand short tons): |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|                                         | Total production                      |   |                      | 54.5 |             |  |         | 24.1 |          |  |      | 65.3 |  |  |      | 143.9 | 
|                                         | Less minority participants shares    |   |                      | 10.9 |             |  |         |     |          |  |      | 32.1 |  |  |      | 43.0  | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|                                         | Net Phelps Dodge share                |   |                      | 43.6 |             |  |         | 24.1 |          |  |      | 33.2 |  |  |      | 100.9 | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|Copper sales (thousand short tons):      |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|                                         | Net Phelps Dodge share from own mines |   |                      | 47.2 |             |  |         | 24.4 |          |  |      | 32.8 |  |  |      | 104.4 | 
|                                         | Purchased copper                      |   |                      | 2.2  |             |  |         |     |          |  |      |     |  |  |      | 2.2   | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|                                         | Total copper sales                    |   |                      | 49.4 |             |  |         | 24.4 |          |  |      | 32.8 |  |  |      | 106.6 | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|($ in millions)                          |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|Operating income (loss)                  |                                       | $ | 22.4                 |      |             |  | 10.6    |      |          |  | 7.7  |      |  |  | 40.7 |      
|Special items and provisions             |                                       | $ |                     |      |             |  |        |      |          |  |     |      |  |  |     |      
|                                        
|Third Quarter 2002 (as restated)         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|Copper production (thousand short tons): |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|                                         | Total production                      |   |                      | 53.0 |             |  |         | 24.2 |          |  |      | 58.1 |  |  |      | 135.3 | 
|                                         | Less minority participants shares    |   |                      | 10.6 |             |  |         |     |          |  |      | 28.5 |  |  |      | 39.1  | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|                                         | Net Phelps Dodge share                |   |                      | 42.4 |             |  |         | 24.2 |          |  |      | 29.6 |  |  |      | 96.2  | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|Copper sales (thousand short tons):      |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|                                         | Net Phelps Dodge share from own mines |   |                      | 41.6 |             |  |         | 24.0 |          |  |      | 29.4 |  |  |      | 95.0  | 
|                                         | Purchased copper                      |   |                      | 7.1  |             |  |         |     |          |  |      | 16.0 |  |  |      | 23.1  | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|                                         | Total copper sales                    |   |                      | 48.7 |             |  |         | 24.0 |          |  |      | 45.4 |  |  |      | 118.1 | 
|                                         |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |       | 
|($ in millions)                          |                                       |   |                      |      |             |  |         |      |          |  |      |      |  |  |      |      
|Operating income (loss)                  |                                       | $ | 7.7                  |      |             |  | 4.6     |      |          |  | (5.4 | )    |  |  | 6.9  |      
|Special items and provisions             |                                       | $ |                     |      |             |  |        |      |          |  |     |      |  |  |     |      

Refer to segment discussion on pages 46 through 51.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not be
reflective of market conditions. Additionally, certain costs are not allocated to the reportable
segments. (Refer to pages 46 and 47 for further discussion.)





---



##### Table of Contents



-42-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |        |  | 
|---------------------------------------- | ------------------------------------- | - | ---- | ---------- |  | ------------- | ---- | ------------ | - | ---- | ----- | ----- |  |  | ---- | ------ |  | 
|                                         |                                       |   |      | Primary    |  | Manufacturing |      |              |   |      |       | Total
|                                         |                                       |   |      | Molybdenum |  | and Sales     |      | Other Mining |   | PDMC
|                                         |                                       |   |      |            |  |               |      |              |   |     
|Third Quarter 2003                       |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Copper production (thousand short tons): |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total production                      |   |      |           |  |               |      | 1.1          |   |      |       |      |  |  |      | 329.2  | 
|                                         | Less minority participants shares    |   |      |           |  |               |      | 0.2          |   |      |       |      |  |  |      | 62.9   | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Net Phelps Dodge share                |   |      |           |  |               |      | 0.9          |   |      |       |      |  |  |      | 266.3  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Copper sales (thousand short tons):      |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Net Phelps Dodge share from own mines |   |      |           |  |               |      | 0.8          |   |      |       |      |  |  |      | 268.6  | 
|                                         | Purchased copper                      |   |      |           |  |               |      | 88.7         |   |      |       |      |  |  |      | 90.9   | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total copper sales                    |   |      |           |  |               |      | 89.5         |   |      |       |      |  |  |      | 359.5  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Molybdenum production (thousand pounds): |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Primary - Henderson                   |   |      | 5,164      |  |               |      |             |   |      |       |      |  |  |      | 5,164  | 
|                                         | By-product                            |   |      | 7,924      |  |               |      |             |   |      |       |      |  |  |      | 7,924  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total production                      |   |      | 13,088     |  |               |      |             |   |      |       |      |  |  |      | 13,088 | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Molybdenum sales (thousand pounds):      |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Net Phelps Dodge share from own mines |   |      | 12,484     |  |               |      |             |   |      |       |      |  |  |      | 12,484 | 
|                                         | Purchased molybdenum                  |   |      | 2,578      |  |               |      |             |   |      |       |      |  |  |      | 2,578  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total molybdenum sales                |   |      | 15,062     |  |               |      |             |   |      |       |      |  |  |      | 15,062 | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|($ in millions)                          |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Operating income (loss)                  |                                       | $ | (0.4 | )          |  |               | 6.1  |              |   |      | (19.2 | )     |  |  | 59.6 |       
|Special items and provisions             |                                       | $ |     |            |  |               | (0.1 | )            |   |      | (2.0  | )     |  |  | (5.0 | )     
|                                        
|Third Quarter 2002 (as restated)         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Copper production (thousand short tons): |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total production                      |   |      |           |  |               |      | (0.6         | ) |      |       |      |  |  |      | 312.8  | 
|                                         | Less minority participants shares    |   |      |           |  |               |      | (0.4         | ) |      |       |      |  |  |      | 58.6   | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Net Phelps Dodge share                |   |      |           |  |               |      | (0.2         | ) |      |       |      |  |  |      | 254.2  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Copper sales (thousand short tons):      |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Net Phelps Dodge share from own mines |   |      |           |  |               |      |             |   |      |       |      |  |  |      | 267.4  | 
|                                         | Purchased copper                      |   |      |           |  |               |      | 90.1         |   |      |       |      |  |  |      | 113.2  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total copper sales                    |   |      |           |  |               |      | 90.1         |   |      |       |      |  |  |      | 380.6  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Molybdenum production (thousand pounds): |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Primary - Henderson                   |   |      | 5,794      |  |               |      |             |   |      |       |      |  |  |      | 5,794  | 
|                                         | By-product                            |   |      | 6,358      |  |               |      |             |   |      |       |      |  |  |      | 6,358  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total production                      |   |      | 12,152     |  |               |      |             |   |      |       |      |  |  |      | 12,152 | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Molybdenum sales (thousand pounds):      |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Net Phelps Dodge share from own mines |   |      | 10,790     |  |               |      |             |   |      |       |      |  |  |      | 10,790 | 
|                                         | Purchased molybdenum                  |   |      | 1,768      |  |               |      |             |   |      |       |      |  |  |      | 1,768  | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|                                         | Total molybdenum sales                |   |      | 12,558     |  |               |      |             |   |      |       |      |  |  |      | 12,558 | 
|                                         |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|($ in millions)                          |                                       |   |      |            |  |               |      |              |   |      |       |       |  |  |      |       
|Operating income (loss)                  |                                       | $ | 10.7 |            |  |               | 1.9  |              |   |      | (16.1 | )     |  |  | 5.7  |       
|Special items and provisions             |                                       | $ |     |            |  |               | 0.7  |              |   |      | (3.5  | )     |  |  | (8.1 | )     

Refer to segment discussion on pages 46 through 51.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 46 and
47 for further discussion.)





---



##### Table of Contents



-43-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |       | 
|---------------------------------------- | ------------------------------------- | - | --------- | ----- | -------- |  | ------- | ----- | ------ |  | ------ | ---- | -------- |  | ---- | ---- |  |  | ----- | ---- |  |  | ---- | ----- | 
|                                         |                                       |   | U.S.Mines
|                                         |                                       |   |          
|                                         |                                       |   |           |       |          |  | Bagdad/ |       | Miami/ |  | Chino/ |      |          |  |      |      |  |  |      
|                                         |                                       |   | Morenci   |       | Sierrita |  | Bisbee  |       | Cobre  |  | Tyrone |      | Subtotal
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |         
|Nine Months Ended 2003                   |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|Copper production (thousand short tons): |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Total production                      |   |           | 317.6 |          |  |         | 136.0 |        |  |        | 14.4 |          |  |      | 26.4 |  |  |       | 44.9 |  |  |      | 539.3 | 
|                                         | Less minority participants shares    |   |           | 47.6  |          |  |         |      |        |  |        |     |          |  |      | 8.8  |  |  |       |     |  |  |      | 56.4  | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Net Phelps Dodge share                |   |           | 270.0 |          |  |         | 136.0 |        |  |        | 14.4 |          |  |      | 17.6 |  |  |       | 44.9 |  |  |      | 482.9 | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|Copper sales (thousand short tons):      |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Net Phelps Dodge share from own mines |   |           | 270.0 |          |  |         | 143.4 |        |  |        | 16.6 |          |  |      | 17.6 |  |  |       | 44.9 |  |  |      | 492.5 | 
|                                         | Purchased copper                      |   |           |      |          |  |         |      |        |  |        |     |          |  |      |     |  |  |       |     |  |  |      |      | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Total copper sales                    |   |           | 270.0 |          |  |         | 143.4 |        |  |        | 16.6 |          |  |      | 17.6 |  |  |       | 44.9 |  |  |      | 492.5 | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|($ in millions)                          |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|Operating income (loss)                  |                                       | $ | 37.1      |       |          |  | 48.7    |       |        |  | (4.5   | )    |          |  | (9.8 | )    |  |  | (14.4 | )    |  |  | 57.1 |      
|Special items and provisions             |                                       | $ | (1.1      | )     |          |  |        |       |        |  | (0.5   | )    |          |  | (1.3 | )    |  |  | (0.5  | )    |  |  | (3.4 | )    
|                                        
|Nine Months Ended 2002 (as restated)     |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|Copper production (thousand short tons): |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Total production                      |   |           | 313.4 |          |  |         | 116.1 |        |  |        | 6.2  |          |  |      | 43.6 |  |  |       | 51.5 |  |  |      | 530.8 | 
|                                         | Less minority participants shares    |   |           | 47.0  |          |  |         |      |        |  |        |     |          |  |      | 14.5 |  |  |       |     |  |  |      | 61.5  | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Net Phelps Dodge share                |   |           | 266.4 |          |  |         | 116.1 |        |  |        | 6.2  |          |  |      | 29.1 |  |  |       | 51.5 |  |  |      | 469.3 | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|Copper sales (thousand short tons):      |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Net Phelps Dodge share from own mines |   |           | 266.4 |          |  |         | 140.3 |        |  |        | 13.2 |          |  |      | 29.0 |  |  |       | 51.5 |  |  |      | 500.4 | 
|                                         | Purchased copper                      |   |           |      |          |  |         |      |        |  |        |     |          |  |      |     |  |  |       |     |  |  |      |      | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|                                         | Total copper sales                    |   |           | 266.4 |          |  |         | 140.3 |        |  |        | 13.2 |          |  |      | 29.0 |  |  |       | 51.5 |  |  |      | 500.4 | 
|                                         |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|($ in millions)                          |                                       |   |           |       |          |  |         |       |        |  |        |      |          |  |      |      |  |  |       |      |  |  |      |      
|Operating income (loss)                  |                                       | $ | 25.4      |       |          |  | 8.9     |       |        |  | (14.2  | )    |          |  | 4.9  |      |  |  | (0.2  | )    |  |  | 24.8 |      
|Special items and provisions             |                                       | $ | (0.5      | )     |          |  |        |       |        |  | (2.3   | )    |          |  | (2.5 | )    |  |  |      |      |  |  | (5.3 | )    

Refer to segment discussion on pages 46 through 51.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 46 and 47 for
further discussion.)





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##### Table of Contents



-44-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|---------------------------------------- | ------------------------------------- | - | -------------------- | ----- | ----------- |  | ------- | ---- | -------- |  | ---- | ----- |  |  | ----- | ----- | 
|                                         |                                       |   | South American Mines
|                                         |                                       |   |                     
|                                         |                                       |   | Candelaria           |       | Cerro Verde |  | El Abra |      | Subtotal
|                                         |                                       |   |                      |       |             |  |         |      |         
|Nine Months Ended 2003                   |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|Copper production (thousand short tons): |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|                                         | Total production                      |   |                      | 167.0 |             |  |         | 73.5 |          |  |      | 180.3 |  |  |       | 420.8 | 
|                                         | Less minority participants shares    |   |                      | 33.4  |             |  |         |     |          |  |      | 88.4  |  |  |       | 121.8 | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|                                         | Net Phelps Dodge share                |   |                      | 133.6 |             |  |         | 73.5 |          |  |      | 91.9  |  |  |       | 299.0 | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|Copper sales (thousand short tons):      |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|                                         | Net Phelps Dodge share from own mines |   |                      | 135.6 |             |  |         | 73.9 |          |  |      | 92.8  |  |  |       | 302.3 | 
|                                         | Purchased copper                      |   |                      | 19.6  |             |  |         |     |          |  |      | 7.3   |  |  |       | 26.9  | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|                                         | Total copper sales                    |   |                      | 155.2 |             |  |         | 73.9 |          |  |      | 100.1 |  |  |       | 329.2 | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|($ in millions)                          |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|Operating income (loss)                  |                                       | $ | 59.1                 |       |             |  | 26.7    |      |          |  | 18.5 |       |  |  | 104.3 |      
|Special items and provisions             |                                       | $ |                     |       |             |  |        |      |          |  |     |       |  |  |      |      
|                                        
|Nine Months Ended 2002 (as restated)     |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|Copper production (thousand short tons): |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|                                         | Total production                      |   |                      | 163.2 |             |  |         | 70.7 |          |  |      | 186.8 |  |  |       | 420.7 | 
|                                         | Less minority participants shares    |   |                      | 32.6  |             |  |         |     |          |  |      | 91.5  |  |  |       | 124.1 | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|                                         | Net Phelps Dodge share                |   |                      | 130.6 |             |  |         | 70.7 |          |  |      | 95.3  |  |  |       | 296.6 | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|Copper sales (thousand short tons):      |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|                                         | Net Phelps Dodge share from own mines |   |                      | 131.3 |             |  |         | 70.6 |          |  |      | 98.0  |  |  |       | 299.9 | 
|                                         | Purchased copper                      |   |                      | 29.9  |             |  |         |     |          |  |      | 39.6  |  |  |       | 69.5  | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|                                         | Total copper sales                    |   |                      | 161.2 |             |  |         | 70.6 |          |  |      | 137.6 |  |  |       | 369.4 | 
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |       | 
|($ in millions)                          |                                       |   |                      |       |             |  |         |      |          |  |      |       |  |  |       |      
|Operating income (loss)                  |                                       | $ | 41.1                 |       |             |  | 18.2    |      |          |  | (4.7 | )     |  |  | 54.6  |      
|Special items and provisions             |                                       | $ |                     |       |             |  |        |      |          |  |     |       |  |  |      |      

Refer to segment discussion on pages 46 through 51.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not
be reflective of market conditions. Additionally, certain costs are not allocated to the
reportable segments. (Refer to pages 46 and 47 for further discussion.)





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##### Table of Contents



-45-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |        | 
|---------------------------------------- | ------------------------------------- | ---------------------- | ---- | ---------- | ------ | ------------- | ---- | ------------ | - | ---- | ----- | ----- | - |  | ----- | ------- | ------ | 
|                                         |                                       |                        |      | Primary    |        | Manufacturing |      |              |   |      |       | Total
|                                         |                                       |                        |      | Molybdenum |        | and Sales     |      | Other Mining |   | PDMC
|                                         |                                       |                        |      |            |        |               |      |              |   |     
|Nine Months Ended 2003                   |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|Copper production (thousand short tons): |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Total production                      |                        |      |           |        |               |      | 5.1          |   |      |       |      |   |  |       | 965.2   |       
|                                         | Less minority participants shares    |                        |      |           |        |               |      | 1.0          |   |      |       |      |   |  |       | 179.2   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Net Phelps Dodge share                |                        |      |           |        |               |      | 4.1          |   |      |       |      |   |  |       | 786.0   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Copper sales (thousand short tons):      |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Net Phelps Dodge share from own mines |                        |      |           |        |               |      | 4.1          |   |      |       |      |   |  |       | 798.9   |       
|                                         | Purchased copper                      |                        |      |           |        |               |      | 242.4        |   |      |       |      |   |  |       | 269.3   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Total copper sales                    |                        |      |           |        |               |      | 246.5        |   |      |       |      |   |  |       | 1,068.2 |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Molybdenum production (thousand pounds): |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Primary - Henderson                   |                        |      | 15,778     |        |               |      |             |   |      |       |      |   |  |       | 15,778  |       
|                                         | By-product                            |                        |      | 21,938     |        |               |      |             |   |      |       |      |   |  |       | 21,938  |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         |                                       | Total production       |      |            | 37,716 |               |      |              |  |      |       |       |  |  |       |         | 37,716 | 
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Molybdenum sales (thousand pounds):      |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Net Phelps Dodge share from own mines |                        |      | 39,783     |        |               |      |             |   |      |       |      |   |  |       | 39,783  |       
|                                         | Purchased molybdenum                  |                        |      | 6,210      |        |               |      |             |   |      |       |      |   |  |       | 6,210   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         |                                       | Total molybdenum sales |      |            | 45,993 |               |      |              |  |      |       |       |  |  |       |         | 45,993 | 
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|($ in millions)                          |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|Operating income (loss)                  |                                       | $                      | 0.1  |            |        |               | 21.1 |              |   |      | (61.5 | )     |   |  | 121.1 |        
|Special items and provisions             |                                       | $                      |     |            |        |               | (0.1 | )            |   |      | (2.0  | )     |   |  | (5.5  | )      
|                                        
|Nine Months Ended 2002 (as restated)     |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|Copper production (thousand short tons): |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Total production                      |                        |      |           |        |               |      | (0.2         | ) |      |       |      |   |  |       | 951.3   |       
|                                         | Less minority participants shares    |                        |      |           |        |               |      | (0.3         | ) |      |       |      |   |  |       | 185.3   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Net Phelps Dodge share                |                        |      |           |        |               |      | 0.1          |   |      |       |      |   |  |       | 766.0   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Copper sales (thousand short tons):      |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Net Phelps Dodge share from own mines |                        |      |           |        |               |      | 0.3          |   |      |       |      |   |  |       | 800.6   |       
|                                         | Purchased copper                      |                        |      |           |        |               |      | 264.2        |   |      |       |      |   |  |       | 333.7   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Total copper sales                    |                        |      |           |        |               |      | 264.5        |   |      |       |      |   |  |       | 1,134.3 |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Molybdenum production (thousand pounds): |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Primary - Henderson                   |                        |      | 15,323     |        |               |      |             |   |      |       |      |   |  |       | 15,323  |       
|                                         | By-product                            |                        |      | 17,813     |        |               |      |             |   |      |       |      |   |  |       | 17,813  |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         |                                       | Total production       |      |            | 33,136 |               |      |              |  |      |       |       |  |  |       |         | 33,136 | 
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Molybdenum sales (thousand pounds):      |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Net Phelps Dodge share from own mines |                        |      | 34,894     |        |               |      |             |   |      |       |      |   |  |       | 34,894  |       
|                                         | Purchased molybdenum                  |                        |      | 7,134      |        |               |      |             |   |      |       |      |   |  |       | 7,134   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         |                                       | Total molybdenum sales |      |            | 42,028 |               |      |              |  |      |       |       |  |  |       |         | 42,028 | 
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|($ in millions)                          |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|Operating income (loss)                  |                                       | $                      | 10.9 |            |        |               | (0.8 | )            |   |      | (18.3 | )     |   |  | 71.2  |        
|Special items and provisions             |                                       | $                      |     |            |        |               | 0.7  |              |   |      | 31.2  |       |   |  | 26.6  |        

Refer to segment discussion on pages 46 through 51.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 46 and 47
for further discussion.)





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##### Table of Contents



-46-

Sales of Copper (U.S. and South America) and Molybdenum

The Manufacturing and Sales segment is responsible for selling all copper
produced at the U.S. mines. Intersegment revenues of the individual U.S. mines
represent an internal allocation based on PDMCs sales to unaffiliated
customers. Therefore, the following discussion and analysis combines the U.S.
Mines and Other Mining segments with the Manufacturing and Sales segment.
Additionally, the South American Mines sold approximately 50 percent of their
copper to the Manufacturing and Sales segment in each of the quarters and nine
months ended September 30, 2003 and 2002. Intersegment sales by the South
American Mines are based upon arms-length prices at the time of the sale.
Intersegment sales of any individual mine may not be reflective of the actual
prices PDMC ultimately receives due to a variety of factors including
additional processing, timing of sales to unaffiliated customers, and
transportation premiums. These sales are reflected in the Manufacturing and
Sales segment.

(Unaudited; $ in millions)

|                        |                          |  |               |       |      |  |       |       |  
|----------------------- | ------------------------ |  | ------------- | ----- | ---- |  | ----- | ----- | -
|                        |                          |  | Third Quarter
|                        |                          |  |              
|                        |                          |  | 2003          |       | 2002
|                        |                          |  |               |       |     
|U.S. Mining Operations* |                          |  |               |       |      |  |       |      
|                        | Unaffiliated customers   |  | $             | 520.7 |      |  |       | 467.4 |  
|                        | Intersegment elimination |  |               | (86.7 | )    |  |       | (69.2 | )
|                        |                          |  |               |       |      |  |       |      
|                        |                          |  | 434.0         |       |      |  | 398.2 |      
|                        |                          |  |               |       |      |  |       |      
|South American Mines**  |                          |  |               |       |      |  |       |      
|                        | Unaffiliated customers   |  |               | 82.4  |      |  |       | 80.3  |  
|                        | Intersegment             |  |               | 86.7  |      |  |       | 69.2  |  
|                        |                          |  |               |       |      |  |       |      
|                        |                          |  | 169.1         |       |      |  | 149.5 |      
|                        |                          |  |               |       |      |  |       |      
|Primary Molybdenum      |                          |  |               |       |      |  |       |      
|                        | Unaffiliated customers   |  |               | 101.0 |      |  |       | 81.6  |  
|                        | Intersegment             |  |               |      |      |  |       |      |  
|                        |                          |  |               |       |      |  |       |      
|                        |                          |  | 101.0         |       |      |  | 81.6  |      
|                        |                          |  |               |       |      |  |       |      
|Total PDMC              |                          |  |               |       |      |  |       |      
|                        | Unaffiliated customers   |  | $             | 704.1 |      |  |       | 629.3 |  
|                        |                          |  |               |       |      |  |       |      

(Unaudited; $ in millions)

|                        |                          |  |                   |         |      |  |         |         |  
|----------------------- | ------------------------ |  | ----------------- | ------- | ---- |  | ------- | ------- | -
|                        |                          |  | Nine Months Ended
|                        |                          |  | September 30,    
|                        |                          |  |                  
|                        |                          |  | 2003              |         | 2002
|                        |                          |  |                   |         |     
|U.S. Mining Operations* |                          |  |                   |         |      |  |         |        
|                        | Unaffiliated customers   |  | $                 | 1,448.4 |      |  |         | 1,409.2 |  
|                        | Intersegment elimination |  |                   | (214.7  | )    |  |         | (225.6  | )
|                        |                          |  |                   |         |      |  |         |        
|                        |                          |  | 1,233.7           |         |      |  | 1,183.6 |        
|                        |                          |  |                   |         |      |  |         |        
|South American Mines**  |                          |  |                   |         |      |  |         |        
|                        | Unaffiliated customers   |  |                   | 282.0   |      |  |         | 270.4   |  
|                        | Intersegment             |  |                   | 214.7   |      |  |         | 225.6   |  
|                        |                          |  |                   |         |      |  |         |        
|                        |                          |  | 496.7             |         |      |  | 496.0   |        
|                        |                          |  |                   |         |      |  |         |        
|Primary Molybdenum      |                          |  |                   |         |      |  |         |        
|                        | Unaffiliated customers   |  |                   | 270.3   |      |  |         | 205.9   |  
|                        | Intersegment             |  |                   |        |      |  |         |        |  
|                        |                          |  |                   |         |      |  |         |        
|                        |                          |  | 270.3             |         |      |  | 205.9   |        
|                        |                          |  |                   |         |      |  |         |        
|Total PDMC              |                          |  |                   |         |      |  |         |        
|                        | Unaffiliated customers   |  | $                 | 2,000.7 |      |  |         | 1,885.5 |  
|                        |                          |  |                   |         |      |  |         |        



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     

U.S. Mines, Other Mining and Manufacturing and Sales Segments  Sales

Sales and other operating revenues to unaffiliated customers by U.S.
Mines, Other Mining and Manufacturing and Sales increased $53.3 million, or 11
percent, in the 2003 third quarter compared with the 2002 third quarter. This
increase primarily was due to higher average copper prices (approximately $55
million) and higher precious metals sales (approximately $3 million); partially
offset by lower copper sales volumes (approximately $5 million).

Sales and other operating revenues to unaffiliated customers by U.S.
Mines, Other Mining and Manufacturing and Sales increased $39.2 million, or 3
percent, in the first nine months of 2003 compared with the corresponding 2002
period. This increase primarily was due to higher average copper prices
(approximately $83 million); partially offset by lower copper sales volumes
(approximately $41 million).





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##### Table of Contents



-47-

South American Mines Segments  Sales

South American Mines sales and other operating revenues to unaffiliated
customers increased $2.1 million, or 3 percent, in the 2003 third quarter
compared with the 2002 third quarter. This increase primarily was due to
higher realized copper prices (approximately $21 million); partially offset by
lower sales volumes of copper (approximately $17 million).

South American Mines sales and other operating revenues to unaffiliated
customers increased $11.6 million, or 4 percent, in the first nine months of
2003 compared with the corresponding 2002 period. This increase primarily was
due to higher realized copper prices (approximately $35 million) and higher
precious metals sales (approximately $4 million); partially offset by lower
sales volumes of copper (approximately $25 million).

Primary Molybdenum Segment  Sales

Primary Molybdenum sales and other operating revenues to unaffiliated
customers increased $19.4 million, or 24 percent, in the 2003 third quarter
compared with the 2002 third quarter. This increase primarily was due to
higher average molybdenum prices (approximately $3 million) and higher sales
volumes of molybdenum (approximately $15 million).

Primary Molybdenum sales and other operating revenues to unaffiliated
customers increased $64.4 million, or 31 percent, in the first nine months of
2003 compared with the corresponding 2002 period. This increase primarily was
due to higher average molybdenum prices (approximately $45 million) and higher
sales volumes (approximately $18 million).

Operating Income (Loss) for Copper (U.S. and South America) and Molybdenum

In addition to the allocation of revenues, management allocates certain
operating costs, expenses and capital of PDMCs segments that may not be
necessarily reflective of market conditions. We also do not allocate all costs
and expenses applicable to a mine or operation from the division or corporate
offices. Accordingly, the segment information reflects managements
determinations that may not be indicative of actual financial performance of
each segment as if it was an independent entity.

(Unaudited; $ in millions)

|                        |            |   |               |      |      |  |               |     | 
|----------------------- | ---------- | - | ------------- | ---- | ---- |  | ------------- | --- | 
|                        |            |   | Third Quarter
|                        |            |   |              
|                        |            |   | 2003          |      | 2002
|                        |            |   |               |      |     
|                        |            |   |               |      |      |  | (As Restated)
|U.S. Mining Operations* |            | $ | 19.3          |      |      |  | (11.9         | )  
|South American Mines**  |            |   | 40.7          |      |      |  | 6.9           |    
|Primary Molybdenum      |            |   | (0.4          | )    |      |  | 10.7          |    
|                        |            |   |               |      |      |  |               |    
|                        | Total PDMC |   | $             | 59.6 |      |  |               | 5.7 | 
|                        |            |   |               |      |      |  |               |    

(Unaudited; $ in millions)

|                        |            |   |                   |       |      |  |               |      | 
|----------------------- | ---------- | - | ----------------- | ----- | ---- |  | ------------- | ---- | 
|                        |            |   | Nine Months Ended
|                        |            |   | September 30,    
|                        |            |   |                  
|                        |            |   | 2003              |       | 2002
|                        |            |   |                   |       |     
|                        |            |   |                   |       |      |  | (As Restated)
|U.S. Mining Operations* |            | $ | 16.7              |       |      |  | 5.7           |     
|South American Mines**  |            |   | 104.3             |       |      |  | 54.6          |     
|Primary Molybdenum      |            |   | 0.1               |       |      |  | 10.9          |     
|                        |            |   |                   |       |      |  |               |     
|                        | Total PDMC |   | $                 | 121.1 |      |  |               | 71.2 | 
|                        |            |   |                   |       |      |  |               |     



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     
|  
|   |  | U.S. Mining Operations  Operating Income (Loss)                                                                                                               

U.S. Mining Operations reported operating income of $19.3 million in the
2003 third quarter including $5.0 million of special, net pre-tax losses,
compared with an operating loss of $11.9 million in the 2002 third quarter
including $8.1 million of special, net pre-tax losses.

U.S. Mining Operations reported operating income of $16.7 million for the
first nine months of





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2003 including $5.5 million of special, net pre-tax losses, compared with
operating income of $5.7 million in the corresponding 2002 period including
$26.6 million of special, net pre-tax gains. (Refer to the separate discussion
of PDMCs segments below for further detail.)

Note: Supplemental Data

The following table summarizes U.S. Mining Operations special items for
2003 and 2002 and the resultant earnings (losses) excluding these special
items:

(Unaudited; $ in millions)

|                                                            |  |               |      |               |  |  |      |  
|----------------------------------------------------------- |  | ------------- | ---- | ------------- |  |  | ---- | -
|                                                            |  | Third Quarter
|                                                            |  |              
|                                                            |  | 2003          |      | 2002         
|                                                            |  |               |      |              
|                                                            |  |               |      | (As Restated)
|Special, pre-tax items                                      |  | $             | (5.0 | )             |  |  | (8.1 | )
|Segment operating earnings
(losses) excluding special
items |  | $             | 24.3 |               |  |  | (3.8 | )

(Unaudited; $ in millions)

|                                                            |  |                   |      |               |  |  |       |  
|----------------------------------------------------------- |  | ----------------- | ---- | ------------- |  |  | ----- | -
|                                                            |  | Nine Months Ended
|                                                            |  | September 30,    
|                                                            |  |                  
|                                                            |  | 2003              |      | 2002         
|                                                            |  |                   |      |              
|                                                            |  |                   |      | (As Restated)
|Special, pre-tax items                                      |  | $                 | (5.5 | )             |  |  | 26.6  |  
|Segment operating earnings
(losses) excluding special
items |  | $                 | 22.2 |               |  |  | (20.9 | )

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

Morenci Segment  Operating Income

The Morenci open-pit mine, located in southeastern Arizona, primarily
produces electrowon copper cathode. We own an 85 percent interest in Morenci
and apply the proportional consolidation method of accounting. Operating
income of $19.8 million in the 2003 third quarter increased $19.1 million
compared with the 2002 third quarter, primarily due to higher average copper
prices (approximately $18 million) and slightly lower cost of copper production
(approximately $1 million) primarily due to higher production volumes.

Operating income of $37.1 million for the first nine months of 2003
increased $11.7 million compared with the corresponding 2002 period, primarily
due to higher average copper prices (approximately $21 million); partially
offset by higher cost of copper production (approximately $11 million)
primarily due to higher energy costs.

Bagdad/Sierrita Segment  Operating Income

Our wholly owned Bagdad and Sierrita open-pit mines, located in northwest
Arizona and near Green Valley, Arizona, respectively, mine copper sulfide and
oxide ores. They produce copper and molybdenum concentrates. Since January
2002, the Bagdad and Sierrita mines have been producing between 50 and 70
percent of their capacity due to the economic environment. The 2003 third
quarter operating income of $23.7 million increased $15.0 million compared with
the 2002 third quarter, primarily due to higher average copper prices
(approximately $9 million), favorable finished goods inventory change
(approximately $5 million) and lower cost of copper production (approximately
$3 million); partially offset by lower copper sales volumes (approximately $1
million). The lower cost of copper production of $3 million was primarily due
to higher molybdenum by-product credits resulting from higher prices and
volumes (approximately $12 million); partially offset by an unfavorable change
in heap leach and work-in-process inventory ($2 million), higher mining and
milling costs (approximately $4 million) and higher electricity costs
(approximately $3 million).

Operating income of $48.7 million for the first nine months of 2003
increased $39.8 million compared with the corresponding 2002 period, primarily
due to lower cost of copper production (approximately $27 million), higher
average copper prices (approximately $11 million) and favorable finished goods
inventory change (approximately $2 million). The lower cost of copper
production of $27 million primarily was due to higher molybdenum by-product
credits resulting from higher prices and volumes (approximately $40 million);
partially offset by higher electricity costs (approximately $7 million) and
higher mining and milling costs ($4 million).

On April 28, 2003, the Company announced its copper concentrate-leaching
demonstration plant at Bagdad, Arizona, had been commissioned ahead of
schedule. It is now operating at design capacity. The Bagdad plant is the
first commercial facility in the world to use high-temperature pressure
leaching to treat chalcopyrite concentrates. The new technology should make it
more economical to recover copper from





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chalcopyrite ores, which accounts for approximately 70 percent of the
worlds known copper reserves. Our immediate plans are to continue in the
present mode of operation until the economic viability of the process is
proven. Once we have completed this demonstration, we will be ready for larger
scale commercial application where appropriate.

Miami/Bisbee Segment  Operating Loss

Our wholly owned Miami open-pit mine, located in Miami, Arizona, produces
electrowon copper cathode. Since January 2002, the Miami mine and refinery
have been closed temporarily due to the economic environment. The Bisbee
precipitation operation is located in southern Arizona. The 2003 third quarter
operating loss of $0.7 million decreased $5.2 million compared with the 2002
third quarter, primarily due to the absence of pre-tax special losses of $2.3
million and lower cost of copper production (approximately $2 million)
resulting from higher production and lower depreciation expense, and a
favorable finished goods inventory change (approximately $1 million).

The operating loss of $4.5 million for the first nine months of 2003
decreased $9.7 million compared with the corresponding 2002 period, primarily
due to lower cost of copper production (approximately $9 million) and lower
pre-tax special losses of $1.8 million. Lower cost of copper production is
attributable to higher production (approximately $5 million) and lower
depreciation expense (approximately $4 million).

Chino/Cobre Segment  Operating Income (Loss)

The Chino open-pit mine, located near Silver City, New Mexico, primarily
mines copper sulfide and oxide ores. We own a two-thirds partnership interest
in Chino and apply the proportional consolidation method of accounting. Since
January 1, 2002, the Chino mine and smelter have been closed temporarily;
however, residual leaching has continued and mining of leachable ore resumed in
April 2003. Our wholly owned Cobre mine, which is adjacent to the Chino mine,
has been on care-and-maintenance status since late 1998. The 2003 third
quarter operating loss of $4.9 million increased $2.8 million compared with the
2002 third quarter, primarily due to higher cost of copper production
(approximately $5 million); partially offset by higher average copper prices
(approximately $1 million) and a higher precious metals margin (approximately
$1 million). Higher cost of copper production of $5 million was primarily due
to lower production from lower leach solution grades and flow rates
(approximately $1 million), higher operating costs (approximately $3 million)
and higher energy costs (approximately $1 million).

The operating loss was $9.8 million for the first nine months of 2003,
compared with operating income of $4.9 million in the corresponding 2002
period. This decrease of $14.7 million was primarily due to lower copper sales
volumes (approximately $4 million) and higher cost of copper production
(approximately $12 million); partially offset by higher average copper prices
(approximately $1 million). Higher cost of copper production of $12 million
primarily was due to lower production from lower leach solution grades and flow
rates (approximately $7 million), higher energy costs (approximately $3
million) and higher operating costs (approximately $2 million); partially
offset by lower closure expense (approximately $1 million).

Tyrone Segment  Operating Income (Loss)

Our wholly owned Tyrone open-pit mine, located near Tyrone, New Mexico,
primarily mines copper oxide ore. It produces electrowon copper cathode. The
2003 third quarter operating loss of $5.5 million increased $6.4 million
compared with the 2002 third quarter due to higher cost of copper production
(approximately $8 million); partially offset by higher average copper prices
(approximately $3 million). The higher cost of copper production included an
unfavorable change in heap leach and work-in-process inventory (approximately
$11 million) and lower production due to lower grade and recovery
(approximately $4 million); partially offset by lower operating costs
(approximately $5 million) and lower closure expense (approximately $1
million).

The operating loss of $14.4 million for the first nine months of 2003
increased $14.2 million compared with the corresponding 2002 period due to
higher cost of copper production (approximately $17 million); partially offset
by higher average copper prices (approximately $4 million). The higher cost of
copper production of $17 million included an unfavorable change in heap leach
and work-in-process inventory (approximately $31 million); partially offset by
lower costs associated with mine plan changes and lower production
(approximately $8 million) and lower closure expense from the adoption of SFAS
No. 143 (approximately $8 million).





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South American Mines  Operating Income

South American Mines reported operating income in the 2003 third quarter
of $40.7 million, compared with $6.9 million in the 2002 third quarter.

South American Mines reported operating income of $104.3 million for the
first nine months of 2003, compared with $54.6 million for the first nine
months of 2002.

(Refer to the separate discussion of PDMCs segments below for further
detail.)

Candelaria Segment  Operating Income

The Candelaria open-pit mine is located near Copiapó in northern Chile and
produces copper concentrates. We own an 80 percent partnership interest in
Candelaria, a Chilean contractual mining company, and we apply the proportional
consolidation method of accounting. Operating income of $22.4 million in the
2003 third quarter increased $14.7 million compared with the 2002 third quarter
primarily due to higher average realized prices ($10 million), lower unit cost
of copper production (approximately $3 million) and a favorable finished goods
inventory change (approximately $2 million). The decrease in unit cost of
copper production was primarily due to higher precious metals credits
(approximately $2 million) and higher production due to a higher copper ore
grade (approximately $1 million).

Operating income of $59.1 million for the first nine months of 2003
increased $18.0 million compared with the corresponding 2002 period primarily
due to higher average copper prices (approximately $10 million), lower cost of
copper production ($8 million) and higher gold sales margin ($4 million);
partially offset by lower downstream margins (approximately $4 million). The
decrease in unit cost of copper production of $8 million was primarily due to a
higher copper ore grade (approximately $2 million), higher precious metals
credits (approximately $2 million) and lower downstream rates (approximately $3
million).

Cerro Verde Segment  Operating Income

The Cerro Verde open-pit mine, located near Arequipa, Peru, produces
electrowon copper cathode. We own approximately 82 percent of the common stock
of Cerro Verde, which we fully consolidate with a minority interest. The 2003
third quarter operating income of $10.6 million increased $6.0 million from the
2002 third quarter primarily due to higher average copper prices (approximately
$7 million); partially offset by higher cost of copper production
(approximately $1 million) primarily due to higher operating expenses.

Operating income of $26.7 million for the first nine months of 2003
increased $8.5 million from the corresponding 2002 period primarily due to
higher average copper prices (approximately $10 million) and higher copper
sales volumes (approximately $1 million); partially offset by higher cost of
copper production (approximately $2 million) primarily due to the change in
heap leach and work-in-process inventory (approximately $1 million) and higher
operating expenses (approximately $1 million).

El Abra Segment  Operating Income (Loss)

The El Abra open-pit mine is located in northern Chile and produces
electrowon copper cathode. We own a 51 percent partnership interest in El
Abra, a Chilean contractual mining company, and we apply the proportional
consolidation method of accounting. The remaining 49 percent interest is owned
by Corporación Nacional del Cobre de Chile (CODELCO), a Chilean state-owned
company. The 2003 third quarter operating income of $7.7 million increased
$13.1 million from the 2002 third quarter primarily due to higher average
copper prices (approximately $12 million) and lower cost of copper production
(approximately $1 million). Lower production costs reflected higher production
due to higher ore grade and recovery (approximately $5 million) and a favorable
change in heap leach and work-in-process inventory (approximately $2 million);
partially offset by higher depreciation expense (approximately $1 million) and
higher operating expenses ($4 million).

Operating income of $18.5 million for the first nine months of 2003
increased $23.2 million from the corresponding 2002 period primarily due to
higher average copper prices (approximately $17 million) and lower cost of
copper production (approximately $5 million). Lower production costs reflected
a favorable change in heap leach and work-in-process inventory (approximately
$10 million), higher production levels (approximately $3 million) and lower
energy costs (approximately $3 million); partially offset by higher
depreciation expense (approximately $3 million) and higher operating expenses
($7 million).





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Primary Molybdenum  Operating Income (Loss)

Primary Molybdenum includes our wholly owned Henderson and Climax
molybdenum mines in Colorado and conversion facilities in the United States and
Europe. Henderson produces high-purity, chemical-grade molybdenum
concentrates, which are further processed into value-added molybdenum chemical
products. Climax is currently on care-and-maintenance status. We expect 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.

Primary Molybdenum operations reported an operating loss in the 2003 third
quarter of $0.4 million, compared with operating income of $10.7 million in the
third quarter of 2002. The 2003 third quarter decrease of $11.1 million
primarily was due to higher purchased costs of third-party molybdenum as well
as by-product molybdenum purchased from certain of our U.S. copper operations
(approximately $18 million), higher production costs (approximately $8 million)
and lower inventory build credits (approximately $3 million); partially offset
by higher average molybdenum prices (approximately $3 million) and higher sales
volumes (approximately $15 million). The higher production costs primarily
resulted from higher conversion costs (approximately $4 million), mining costs
(approximately $2 million) and energy and maintenance costs (approximately $2
million).

Primary Molybdenum operations reported operating income of $0.1 million
for the first nine months of 2003, compared with operating income of $10.9
million for the first nine months of 2002. The decrease of $10.8 million
primarily was due to higher purchased costs of third-party molybdenum as well
as by-product molybdenum purchased from certain of our U.S. copper operations
(approximately $48 million), higher production costs (approximately $21
million), higher shutdown expenses ($2 million) and higher marketing costs ($2
million); partially offset by higher average molybdenum prices (approximately
$45 million) and higher sales volumes (approximately $18 million). The higher
production costs primarily resulted from higher mining costs (approximately $7
million), conversion costs (approximately $8 million), energy costs
(approximately $3 million) and higher maintenance costs (approximately $2
million).

PDMC  Other Matters

In the fourth quarter of 2003, we will update our mine plans and
associated ore reserves. The mine plans are based upon managements estimates
including long-term copper and molybdenum prices reflective of recent historic
average copper and molybdenum price cycles. Upon completion of these mine
plans, we will conduct impairment analyses if warranted as a result of any
significant changes.

We have approximately 700 million to 760 million pounds of curtailed
annual copper production capacity (100 percent basis), depending on near-term
mine plans, that could be brought to market. At the end of the 2003 third
quarter, such capacity approximated 705 million pounds (660 million pounds in
the United States and 45 million pounds internationally). This curtailed
capacity is located at eight of our mine sites, all with existing
infrastructures. Approximately 605 million to 665 million pounds of this
curtailed annual capacity is located at our active mine sites and approximately
95 million pounds is located at inactive sites (50 million at Cobre and 45
million at Ojos del Salado).

Any decision to recommence full operations at mine sites at which we have
curtailed capacity will depend on several factors including then-prevailing
copper prices, managements assessment of copper market fundamentals, and its
estimates of future copper price trends and the extent to which any such new
production is necessary for the efficient integration of the Companys other
copper-producing operations at that time. Managements assessment of copper
market fundamentals will reflect its judgment about future global economic
activity and demand, and its estimates of the likelihood and timing of
curtailed or new projects of competitors being placed into production. While
there is no single copper price threshold that would necessarily trigger the
recommencement of full operations at any of these sites, management does not
expect to recommence operations until there has been a significant improvement
in copper market fundamentals or a production integration inefficiency that
could be alleviated by such recommencement.

During the 2003 third quarter, PDMC shifted a portion of its copper
production from its Tyrone mine to its Chino mine, both in New Mexico. Annual
copper production from New Mexico operations will stabilize in the range of 200
million to 230 million pounds per year. As a result of this shift in
production, Tyrone conducted an impairment analysis. The analysis indicated
that Tyrones carrying value continued to be recoverable.

Any material change in the price we receive for copper, or in PDMCs
implied unit cost of





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copper production, has a significant effect on our results. Based on
expected 2003 annual production of approximately 2.1 billion pounds of copper,
each 1 cent per pound change in the average annual copper price, or in average
annual implied unit cost of copper production, causes a variation in annual
operating income before taxes of approximately $21 million.

Our current annual molybdenum production is approximately 52 million
pounds (approximately 22 million pounds from primary mines and 30 million
pounds from by-product mines). Approximately 70 percent of our molybdenum
contracts are priced based on the average of the previous 30 days of published
prices (i.e., Platts Metals Week, Ryans Notes, or Metal Bulletin), plus
premiums. Accordingly, each $1.00 per pound change in our average annual
realized molybdenum price causes a variation in annual operating income before
taxes of approximately $36 million (subject to any negotiated limitations in
outstanding customer agreements).

From time to time, we may purchase or sell copper price protection
contracts for a portion of our expected future mine production. We do this to
limit the effects of potential decreases in copper selling prices. We did not
have any outstanding copper price protection contracts on September 30, 2003.

In July 2003, the Company announced that one of its wholly owned
subsidiaries agreed to acquire Heisei Minerals Corporations
(Heisei) one-third general
partnership interest in Chino Mines Company (Chino) in New Mexico. In
connection with this transaction, Heisei will pay on behalf of Chino,
approximately $64 million in cash to a trust to fund closure, closeout and
reclamation obligations of Chino, which represents a one-third share of an
estimate by the state of New Mexico of the amount of financial assurance Chino
must provide in connection with its current permits. In addition, Heisei will
pay $50 million to the Companys subsidiary to cover other Heisei obligations.
Completion of the transaction, which is subject to certain closing conditions,
is expected to occur in the 2003 fourth quarter. Due to our business
expectations and plans, which result in significant differences in the
operating life of Chino as compared with Heisei, we currently expect to
recognize an extraordinary gain of approximately $50 million to $65 million
upon completing the transaction, subject to finalization of fair value
estimates.

PDMC  New Mexico Reclamation

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 the 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, which Chino has moved to dismiss
on procedural grounds. 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 WQCC. NMED





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issued a permit in accordance with the hearing officers decision on April
8, 2003, which Tyrone also has appealed. A hearing on Tyrones appeal has been
set before the WQCC. 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. 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. Based on NMEDs permit actions,
closeout plan approval under the Mining Commissions Order for Chino was due by
September 24, 2003, but was extended by the MMD Director to November 24, 2003.
The closeout plan approval date for Tyrone is 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 $394 million, based upon third-party unescalated and undiscounted
capital and operating costs over a 100-year operating period, including the
cost of technical studies required under the permit. The Companys two-thirds
share of NMEDs $394 million estimate is approximately $263 million and our
joint venture partners cost share is approximately $131 million. We estimate
total costs for Chino Mines Company to achieve the closure standards required
by NMED to be approximately $287 million (100 percent basis); that estimate is
approximately one-





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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 $191 million and our joint venture
partners cost share is approximately $96 million. At September 30, 2003, and
December 31, 2002, we had accrued approximately $18 million and $8 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 permits 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 $257 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 September 30, 2003, and December 31,
2002, we had accrued closure costs of approximately $61 million and $27
million, respectively, at Tyrone and approximately $7 million and $2 million,
respectively, 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 (NPV) 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 NMED, the
financial assurance amount for Chino could be approximately $191 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 MMD can approve the closeout plan. Chino and Tyrone
have provided approximately $56 million and $58 million of financial assurance
in the form of surety bonds, respectively, to NMED under the terms of several
discharge permits. The closure and financial assurance requirements of these
permits have been superseded by the recently issued NMED closure permits.
Consequently, the Company has advised NMED that this financial assurance should
be terminated and replaced by new financial assurance under the terms of the
new closure permits. Chino and Tyrone have submitted financial assurance
proposals in accordance with the schedules under their NMED closure permit
proposing financial assurance primarily in the form of corporate performance
guarantees from the Company. 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. Hidalgo currently has provided financial assurance in the amount of
approximately $11 million under its discharge permit.

In late May 2003, the Company and the state announced an agreement on a
framework for the Company to provide financial assurance for Chino, Tyrone and
Cobre under both NMMAR and WQCC Regulations. Under this agreement, the Company
will provide financial assurance based upon the NPV of the cost estimates in a
total amount of approximately $484 million. Initially, approximately 70
percent of this amount will be covered by a corporate performance guarantee.





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-55-

The balance of approximately 30 percent will be provided as trust funds
and collateral, including cash and liens on certain owned parcels of non-mining
real estate located in New Mexico. In addition, the Company agreed to expend
at least $30 million on accelerated closure and reclamation work over the next
10 years. The amounts to be covered by guarantees will be reduced to
approximately 64 percent by the amount of accelerated reclamation performed.

Following the July announcement of the Companys agreed upon acquisition
of Heiseis one-third interest in Chino and
Heiseis agreement to provide funding for one-third of the Chino financial
assurance in a trust fund, the Company and the state engaged in further
discussions regarding the details of the financial assurance to be provided
under the May 2003 framework. On October 1, 2003, the Company and the state
announced the signing of an addendum to the May agreement. Under the addendum,
Chinos financial assurance will consist of one-third as a trust fund and the
remaining two-thirds as a guarantee. Completion of the one-third acquisition
from Heisei, which is subject to certain closing conditions, is expected to
occur in the 2003 fourth quarter. Tyrone will place an initial amount of $17
million in a trust fund, increasing to $27 million over five years. About
$62.8 million in collateral will be required initially to cover the 30 percent
of Tyrones financial assurance not covered by a guarantee. Cobre will have a
$1 million trust fund, increasing to $3 million over five years, and an initial
amount of about $7.4 million in collateral. The addendum also sets a goal of a
total of $109.8 million, including earnings on the trust funds, in all three
trust funds at the end of a five-year period. The addendum retains the
Companys commitment to expend at least $30 million over the next 10 years on
accelerated reclamation of inactive portions of the three mines, and adds a
schedule identifying particular projects and anticipated timeframes for
reclamation.

On October 10, 2003, Tyrone signed a Settlement Agreement with NMED to
fulfill a major portion of the commitment to expend at least $30 million for
reclamation by agreeing to reclaim all of the inactive tailing impoundments at
Tyrone over an eight-year period. The Settlement Agreement was executed on
behalf of NMED on October 15, 2003.

Finalization of the financial assurance is subject to completion of the
permitting process, including additional public comment and hearings. MMD also
has proposed some changes to NMMAR for consideration by the Mining Commission,
which could affect the final financial assurance package.




RESULTS OF PHELPS DODGE INDUSTRIES

PDI, our manufacturing division, produces 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 manufacturing division includes our
Specialty Chemicals segment and our Wire and Cable segment. Our Specialty
Chemicals segment includes Columbian Chemicals Company and its subsidiaries
(Columbian Chemicals or Columbian). Our Wire and Cable segment consists of
three worldwide product line businesses including magnet wire, energy and
telecommunications cables, and specialty conductors.

(Unaudited; $ in millions)

|                                                              |                     |   |               |       |      |  |       |       |  
|------------------------------------------------------------- | ------------------- | - | ------------- | ----- | ---- |  | ----- | ----- | -
|                                                              |                     |   | Third Quarter
|                                                              |                     |   |              
|                                                              |                     |   | 2003          |       | 2002
|                                                              |                     |   |               |       |     
|Sales and other operating revenues
to unaffiliated customers: |                     |   |               |       |      |  |       |      
|                                                              | Specialty Chemicals |   | $             | 152.0 |      |  |       | 138.5 |  
|                                                              | Wire and Cable      |   |               | 175.0 |      |  |       | 173.4 |  
|                                                              |                     |   |               |       |      |  |       |       |  
|                                                              |                     | $ | 327.0         |       |      |  | 311.9 |      
|                                                              |                     |   |               |       |      |  |       |      
|Operating income (loss):                                      |                     |   |               |       |      |  |       |      
|                                                              | Specialty Chemicals |   | $             | 8.4   |      |  |       | 12.1  |  
|                                                              | Wire and Cable      |   |               | 5.8   |      |  |       | (19.1 | )
|                                                              |                     |   |               |       |      |  |       |       |  
|                                                              |                     | $ | 14.2          |       |      |  | (7.0  | )    
|                                                              |                     |   |               |       |      |  |       |      

(Unaudited; $ in millions)

|                                                              |                     |   |                   |       |      |  |       |       |  
|------------------------------------------------------------- | ------------------- | - | ----------------- | ----- | ---- |  | ----- | ----- | -
|                                                              |                     |   | Nine Months Ended
|                                                              |                     |   | September 30,    
|                                                              |                     |   |                  
|                                                              |                     |   | 2003              |       | 2002
|                                                              |                     |   |                   |       |     
|Sales and other operating revenues
to unaffiliated customers: |                     |   |                   |       |      |  |       |      
|                                                              | Specialty Chemicals |   | $                 | 480.2 |      |  |       | 408.3 |  
|                                                              | Wire and Cable      |   |                   | 490.4 |      |  |       | 532.7 |  
|                                                              |                     |   |                   |       |      |  |       |       |  
|                                                              |                     | $ | 970.6             |       |      |  | 941.0 |      
|                                                              |                     |   |                   |       |      |  |       |      
|Operating income (loss):                                      |                     |   |                   |       |      |  |       |      
|                                                              | Specialty Chemicals |   | $                 | 37.5  |      |  |       | 42.3  |  
|                                                              | Wire and Cable      |   |                   | 12.7  |      |  |       | (13.0 | )
|                                                              |                     |   |                   |       |      |  |       |       |  
|                                                              |                     | $ | 50.2              |       |      |  | 29.3  |      
|                                                              |                     |   |                   |       |      |  |       |      





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##### Table of Contents



-56-

PDI  Sales

PDI reported sales to unaffiliated customers of $327.0 million in the 2003
third quarter, compared with $311.9 million in the 2002 third quarter. The
increase of $15.1 million was due to higher specialty chemicals sales of $13.5
million resulting primarily from higher average unit selling prices in Europe
and South America (approximately $8 million) due to higher feedstock-related
increases and higher foreign currency translation gains (approximately $8
million). Additionally, wire and cable sales were slightly higher by $1.6
million due to higher sales volumes of wire and cable in Brazil, Central
America and Africa (approximately $8 million); partially offset by lower sales
volumes in North America (approximately $6 million).

PDI reported sales to unaffiliated customers of $970.6 million for the
first nine months of 2003, compared with $941.0 million in the corresponding
2002 period. The increase of $29.6 million was due to higher specialty
chemicals sales of $71.9 million resulting from higher average unit selling
prices worldwide (approximately $52 million) due to general market increases
and higher feedstock-related increases, higher foreign currency translation
gains (approximately $14 million) and slightly higher sales volumes
(approximately $6 million). Wire and cable sales were $42.3 million lower due
to lower sales volumes as a result of reduced demand stemming from continuing
global economic uncertainty.

PDI  Operating Income (Loss)

PDI reported operating income of $14.2 million in the 2003 third quarter,
including a special pre-tax gain of $0.4 million, compared with an operating
loss of $7.0 million in the 2002 third quarter, including a net special pre-tax
loss of $21.4 million.

PDI reported operating income of $50.2 million for the first nine months
of 2003, including a special, net pre-tax gain of $3.6 million, compared with
operating income of $29.3 million in the corresponding 2002 period, including a
net special pre-tax loss of $21.4 million.

(Refer to the separate discussion of PDIs Specialty Chemicals and Wire
and Cable segments below for further detail.)

Note: Supplemental Data

The following table summarizes PDIs special items for the third quarters
and first nine months of 2003 and 2002 and the resultant earnings excluding
these special items:

(Unaudited; $ in millions)

|                                                   |  |               |      |      |  |  |       |  
|-------------------------------------------------- |  | ------------- | ---- | ---- |  |  | ----- | -
|                                                   |  | Third Quarter
|                                                   |  |              
|                                                   |  | 2003          |      | 2002
|                                                   |  |               |      |     
|Operating income (loss)                            |  | $             | 14.2 |      |  |  | (7.0  | )
|Special, pre-tax items                             |  |               | 0.4  |      |  |  | (21.4 | )
|                                                   |  |               |      |      |  |  |       |  
|Segment operating earnings
excluding special items |  | $             | 13.8 |      |  |  | 14.4  |  
|                                                   |  |               |      |      |  |  |       |  

(Unaudited; $ in millions)

|                                                   |  |                   |      |      |  |  |       |  
|-------------------------------------------------- |  | ----------------- | ---- | ---- |  |  | ----- | -
|                                                   |  | Nine Months Ended
|                                                   |  | September 30,    
|                                                   |  |                  
|                                                   |  | 2003              |      | 2002
|                                                   |  |                   |      |     
|Operating income                                   |  | $                 | 50.2 |      |  |  | 29.3  |  
|Special, pre-tax items                             |  |                   | 3.6  |      |  |  | (21.4 | )
|                                                   |  |                   |      |      |  |  |       |  
|Segment operating earnings
excluding special items |  | $                 | 46.6 |      |  |  | 50.7  |  
|                                                   |  |                   |      |      |  |  |       |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.





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##### Table of Contents



-57-

Special items and provisions in operating income were as follows:

(Unaudited; $ in millions)

|                                             |  |               |     |      |  |  |       |  
|-------------------------------------------- |  | ------------- | --- | ---- |  |  | ----- | -
|                                             |  | Third Quarter
|                                             |  |              
|                                             |  | 2003          |     | 2002
|                                             |  |               |     |     
|September 2002 restructuring
programs        |  | $             |    |      |  |  | (23.0 | )
|Environmental provisions, net                |  |               | 0.4 |      |  |  | 0.3   |  
|Reassessment of prior
restructuring programs |  |               |    |      |  |  | 1.3   |  
|                                             |  |               |     |      |  |  |       |  
|Special, pre-tax items                       |  | $             | 0.4 |      |  |  | (21.4 | )
|                                             |  |               |     |      |  |  |       |  

(Unaudited; $ in millions)

|                                                     |  |                   |     |      |  |  |       |  
|---------------------------------------------------- |  | ----------------- | --- | ---- |  |  | ----- | -
|                                                     |  | Nine Months Ended
|                                                     |  | September 30,    
|                                                     |  |                  
|                                                     |  | 2003              |     | 2002
|                                                     |  |                   |     |     
|Termination of a foreign
postretirement benefit plan |  | $                 | 3.2 |      |  |  |      |  
|September 2002 restructuring
programs                |  |                   |    |      |  |  | (23.0 | )
|Environmental provisions, net                        |  |                   | 0.4 |      |  |  | 0.3   |  
|Reassessment of prior
restructuring programs         |  |                   |    |      |  |  | 1.3   |  
|                                                     |  |                   |     |      |  |  |       |  
|Special, pre-tax items                               |  | $                 | 3.6 |      |  |  | (21.4 | )
|                                                     |  |                   |     |      |  |  |       |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

Specialty Chemicals  Operating Income

Specialty Chemicals reported operating income in the 2003 third quarter of
$8.4 million, compared with $12.1 million in the 2002 third quarter. The 2003
third quarter decrease of $3.7 million primarily was due to lower sales volumes
in Europe (approximately $2 million), higher manufacturing expense primarily
for increased turnaround activity, higher utility costs and depreciation
(approximately $8 million), and the absence of a special, pre-tax gain of $1.1
million in the 2002 third quarter. These were partially offset by higher Quest
for Zeroimprovements of approximately $4 million and improved variable margins
primarily in Europe (approximately $4 million).

Specialty Chemicals reported operating income of $37.5 million for the
first nine months of 2003 including a special, net pre-tax gain of $3.2
million, compared with operating income of $42.3 million for the first nine
months of 2002 including a special, net pre-tax gain of $1.1 million.
Excluding special items, operating income decreased $6.9 million due to higher
maintenance expense, depreciation, legal fees, research and development
expense, and benefits expense (approximately $15 million), which was minimized
due to Quest for Zeroimprovements of approximately $8 million.

Note: Supplemental Data

The following table summarizes Specialty Chemicals special items for the
quarters and nine months ended September 30, 2003 and 2002, and the resultant
earnings excluding these special items:

(Unaudited; $ in millions)

|                                                   |  |               |     |      |  |  |      | 
|-------------------------------------------------- |  | ------------- | --- | ---- |  |  | ---- | 
|                                                   |  | Third Quarter
|                                                   |  |              
|                                                   |  | 2003          |     | 2002
|                                                   |  |               |     |     
|Special, pre-tax items                             |  | $             |    |      |  |  | 1.1  | 
|Segment operating earnings
excluding special items |  | $             | 8.4 |      |  |  | 11.0 | 

(Unaudited; $ in millions)

|                                                   |  |                   |      |      |  |  |      | 
|-------------------------------------------------- |  | ----------------- | ---- | ---- |  |  | ---- | 
|                                                   |  | Nine Months Ended
|                                                   |  | September 30,    
|                                                   |  |                  
|                                                   |  | 2003              |      | 2002
|                                                   |  |                   |      |     
|Special, pre-tax items                             |  | $                 | 3.2  |      |  |  | 1.1  | 
|Segment operating earnings
excluding special items |  | $                 | 34.3 |      |  |  | 41.2 | 

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

Wire
and Cable  Operating Income (Loss)

Wire
and Cable reported operating income in the 2003 third quarter of
$5.8 million including a special, net pre-tax gain of $0.4 million, compared
with an operating loss of $19.1 million in the 2002 third quarter including a
special, net pre-tax loss of $22.5 million. Wire and Cables operating income
increased primarily due to the absence of a special, pre-tax loss of $23.0
million associated with the temporary closure of the Laurinburg, North
Carolina, magnet wire plant, the temporary closure of the West Caldwell, New
Jersey, High Performance Conductors facility, and restructuring and
consolidation of certain administrative functions in the 2002 third quarter.
Additionally, Quest for Zeroimprovements increased by approximately $2 million
in the 2003 third quarter compared with the 2002 third quarter.





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-58-

Wire and Cable reported operating income of $12.7 million for the first
nine months of 2003 including a special, net pre-tax gain of $0.4 million,
compared with an operating loss of $13.0 million for the first nine months of
2002 including a special, net pre-tax loss of $22.5 million. Excluding special
items, Wire and Cables operating income increased $2.8 million due to Quest
for Zeroimprovements of approximately $6 million; partially offset by lower
sales volumes and prices due to reduced global demand.

Note: Supplemental Data

The following table summarizes Wire and Cables special items for the
quarters and nine months ended September 30, 2003 and 2002, and the resultant
earnings excluding these special items:

(Unaudited; $ in millions)

|                                                   |  |               |     |      |  |  |       |  
|-------------------------------------------------- |  | ------------- | --- | ---- |  |  | ----- | -
|                                                   |  | Third Quarter
|                                                   |  |              
|                                                   |  | 2003          |     | 2002
|                                                   |  |               |     |     
|Special, pre-tax items                             |  | $             | 0.4 |      |  |  | (22.5 | )
|Segment operating earnings
excluding special items |  | $             | 5.4 |      |  |  | 3.4   |  

(Unaudited; $ in millions)

|                                                   |  |                   |      |      |  |  |       |  
|-------------------------------------------------- |  | ----------------- | ---- | ---- |  |  | ----- | -
|                                                   |  | Nine Months Ended
|                                                   |  | September 30,    
|                                                   |  |                  
|                                                   |  | 2003              |      | 2002
|                                                   |  |                   |      |     
|Special, pre-tax items                             |  | $                 | 0.4  |      |  |  | (22.5 | )
|Segment operating earnings
excluding special items |  | $                 | 12.3 |      |  |  | 9.5   |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.




OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

Selling and General Administrative Expense

Our selling and general administrative expense increased $7.8 million in
the 2003 third quarter compared with the 2002 third quarter. The increase in
the 2003 third quarter primarily resulted from higher pension and retirement
benefits (approximately $2 million), a mark-to-market adjustment of a stock
unit plan (approximately $2 million), higher legal fees (approximately $1
million) and directors and officers liability insurance premiums (approximately
$1 million).

Our selling and general administrative expense increased $14.3 million for
the first nine months of 2003 compared with the corresponding 2002 period. The
increase primarily resulted from higher legal fees associated with SEC reviews,
various litigation, and other legal matters (approximately $4 million),
directors and officers liability insurance premiums (approximately $2 million),
amortization for restricted stock (approximately $2 million), pension and
retirement benefits ($2 million), a mark-to-market adjustment on a stock unit
plan ($2 million) and rent expense (approximately $1 million).

Exploration and Research Expense

Our net exploration and research expense was $12.2 million in the 2003
third quarter, compared with $10.7 million in the 2002 third quarter. The
increase primarily resulted from slightly higher PDMC research expense
(approximately $1 million) and exploration expense ($1 million).

Net exploration and research expense was $34.7 million for the first nine
months of 2003, compared with $28.6 million in the corresponding 2002 period.
The increase primarily resulted from slightly higher PDMC research expense
(approximately $4 million) and exploration expense (approximately $2 million).

Interest Expense

Interest expense decreased $4.5 million in the 2003 third quarter compared
with the 2002 third quarter. The decrease in the 2003 third quarter primarily
was attributable to reductions related to the payoff of long-term debt
(approximately $2 million) and project financing in 2002 (approximately $3
million).

Interest expense decreased $33.5 million for the first nine months of 2003
compared with the corresponding 2002 period. The decrease was primarily
attributable to reductions related to the payoff of long-term debt
(approximately $26 million) and project financing in 2002 (approximately $8
million).





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-59-

Miscellaneous Income (Expense), Net

Miscellaneous income (expense), net, increased $1.2 million in the 2003
third quarter compared with the 2002 third quarter. The increase for the 2003
third quarter resulted primarily from mark-to-market benefits on non-qualified
pension plan assets ($2.3 million), foreign currency exchange gains ($0.9
million) and higher interest income ($0.7 million); partially offset by higher
shutdown expenses ($2.9 million).

Miscellaneous income (expense), net, increased $12.7 million for the first
nine months of 2003 compared with the corresponding 2002 period. The increase
resulted primarily from the gain on sale of a cost-basis wire and cable
investment ($6.4 million), mark-to-market benefits on non-qualified pension
plan assets ($5.8 million), foreign currency exchange gains ($3.8 million) and
the absence of 2002 cost-basis investment write-downs ($1.2 million); partially
offset by higher shutdown expenses ($6.8 million).

Benefit (Provision) for Taxes on Income

The Companys income tax provision for the 2003 third quarter principally
resulted from (i) taxes on earnings at international operations ($14.0 million)
that cannot be offset by losses at domestic operations and (ii) a current-year
loss carryback benefit for U.S. operations ($2.0 million). The Companys
income tax provision for the nine months ended September 30, 2003, primarily
comprised the following: (i) taxes on earnings at international operations
($41.2 million) that cannot be offset by losses at domestic operations, (ii) a
benefit from finalizing year-end 2002 estimates in the Companys 2002 U.S. tax
return filed in June 2003 ($4.2 million) and (iii) a current-year loss
carryback benefit for U.S. operations ($3.1 million).

The Companys income tax benefit for the 2002 third quarter comprised the
following items: (i) an additional $28.1 million special tax benefit
associated with 2001 net operating losses that, based on new tax legislation,
may be carried back to recover prior years taxes; (ii) a $5.0 million benefit
recognized for the 2002 third quarter net operating losses that, based on the
March enactment of the Job Creation and Worker Assistance Act of 2002, may also
be carried back to recover prior years taxes; and (iii) a $2.0 million expense
for taxes on earnings at international operations. The Companys income tax
benefit for the nine months ended September 30, 2002, comprised the following
items: (i) a $66.6 million tax benefit associated with the carryback of 2001
net operating losses that, based on new tax legislation, may be carried back to
recover prior years taxes; (ii) a $39.8 million benefit recognized for the
first nine months of 2002 net operating losses, based on new tax legislation;
(iii) a $17.8 million expense for taxes on earnings at international
operations; and (iv) a $13.0 million benefit for release of deferred taxes
previously provided.

Cumulative Effect of Accounting Change

On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset
Retirement Obligations. With the adoption of this Statement, we recognize
asset retirement obligations (AROs) as liabilities when incurred, with the
initial measurement at fair value. These liabilities will be accreted to full
value over time through charges to income. In addition, an asset retirement
cost is capitalized as part of the related assets carrying value and will
subsequently be depreciated over the assets useful life. Our AROs consist
primarily of costs associated with mine reclamation and closure activities.
These activities, which tend to be site specific, generally include costs for
earthwork, revegetation, water treatment and demolition. Upon adoption, we
recorded an increase to our closure and reclamation reserve of approximately
$2.5 million, net, an increase to our mining properties assets and intangibles
of approximately $12.2 million and a cumulative gain of $8.4 million, net of
deferred taxes. For the quarter and nine months ended September 30, 2003, the
effect of adopting SFAS No. 143 decreased loss before cumulative effect of
accounting change by approximately $3.6 million, or 4 cents per common share,
and $14.5 million, or 16 cents per common share, respectively.





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##### Table of Contents



-60-

The following table summarizes the balance sheet impact associated with
the adoption of SFAS No. 143:

(Unaudited; $ in millions)

|                                           |                              |   |              |       |          |  |          |      |            |  |        |       | 
|------------------------------------------ | ---------------------------- | - | ------------ | ----- | -------- |  | -------- | ---- | ---------- |  | ------ | ----- | 
|                                           |                              |   |              |       |          |  | SFAS     |      | January 1,
|                                           |                              |   | December 31, |       | No. 143  |  | 2003    
|                                           |                              |   | 2002         |       | Adoption |  | After   
|                                           |                              |   | As Reported* |       | Impact   |  | Adoption
|                                           |                              |   |              |       |          |  |         
|Mining properties                          |                              | $ | 907.4        |       |          |  | 63.8     | **   |            |  | 971.2  |      
|Mining properties
accumulated
depreciation |                              |   | (197.1       | )     |          |  | (53.2    | )    |            |  | (250.3 | )    
|                                           |                              |   |              |       |          |  |          |      |            |  |        |      
|                                           | Net mining
properties
assets |   | $            | 710.3 |          |  |          | 10.6 |            |  |        | 720.9 | 
|                                           |                              |   |              |       |          |  |          |      |            |  |        |      
|Intangibles                                |                              | $ | 439.5        |       |          |  | 3.6      | **   |            |  | 443.1  |      
|Intangibles 
accumulated
amortization     |                              |   | (93.6        | )     |          |  | (2.0     | )    |            |  | (95.6  | )    
|                                           |                              |   |              |       |          |  |          |      |            |  |        |      
|                                           | Net intangibles              |   | $            | 345.9 |          |  |          | 1.6  |            |  |        | 347.5 | 
|                                           |                              |   |              |       |          |  |          |      |            |  |        |      
|Asset retirement
obligation
liability      |                              | $ | 138.6        |       |          |  | 10.4     | ***  |            |  | 149.0  |      
|                                           |                              |   |              |       |          |  |          |      |            |  |        |      



|*   |  | Reflects the reclassification of South American mining concessions from
property, plant and equipment, net to intangible assets (refer to Note 3,
Reclassification of Intangible Assets, for further discussion).           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Amounts include $84.0 million and $7.5 million of additions related to
recording an asset retirement cost, offset by $20.2 million and $3.9
million to reclassify amounts recognized as ore reserves in purchase
accounting.
|   
|*** |  | Amount consists of $2.5 million of liabilities recognized at adoption and
$7.9 million of reclassifications related to closure obligations from
other liabilities at adoption.                                              

The pro formaeffects of the application of SFAS No. 143 as if this
Statement had been adopted on January 1, 2002, are presented below:

(Unaudited; $ in millions except per share data)

|                                                                     |                                 |   |       |               |   | 
|-------------------------------------------------------------------- | ------------------------------- | - | ----- | ------------- | - | 
|                                                                     |                                 |   |       | Third Quarter
|                                                                     |                                 |   |       | 2002         
|                                                                     |                                 |   |       |              
|Loss before cumulative effect of
accounting change as reported       |                                 | $ | (53.7 | )            
|Reduced cost of products sold, net
of tax                            |                                 |   | 4.9   |              
|Additional depreciation expense,
net of tax benefit                  |                                 |   | (0.5  | )            
|                                                                     |                                 |   |       |              
|Pro formaloss before cumulative
effect of accounting change          |                                 | $ | (49.3 | )            
|                                                                     |                                 |   |       |              
|Loss per common share before
cumulative effect of accounting
change: |                                 |   |       |              
|                                                                     | Basic and diluted  as reported |   | $     | (0.64         | )
|                                                                     | Basic and diluted  pro forma   |   | $     | (0.59         | )
|Net loss as reported                                                 |                                 | $ | (53.7 | )            
|Pro formanet loss                                                    |                                 | $ | (49.3 | )            
|Loss per common share:                                               |                                 |   |       |              
|                                                                     | Basic and diluted  as reported |   | $     | (0.64         | )
|                                                                     | Basic and diluted  pro forma   |   | $     | (0.59         | )

(Unaudited; $ in millions except per share data)

|                                                                     |                                 |   |       |                   |   |      |        |       |   | 
|-------------------------------------------------------------------- | ------------------------------- | - | ----- | ----------------- | - | ---- | ------ | ----- | - | 
|                                                                     |                                 |   |       | Nine Months Ended
|                                                                     |                                 |   |       | September 30,    
|                                                                     |                                 |   |       |                  
|                                                                     |                                 |   |       | 2003              |   | 2002
|                                                                     |                                 |   |       |                   |   |     
|Loss before cumulative effect of
accounting change as reported       |                                 | $ | (38.9 | )                 |   |      | (89.9  | )    
|Reduced cost of products sold, net
of tax                            |                                 |   |      |                   |   |      | 14.2   |      
|Additional depreciation expense,
net of tax benefit                  |                                 |   |      |                   |   |      | (1.4   | )    
|                                                                     |                                 |   |       |                   |   |      |        |      
|Pro formaloss before cumulative
effect of accounting change          |                                 | $ | (38.9 | )                 |   |      | (77.1  | )    
|                                                                     |                                 |   |       |                   |   |      |        |      
|Loss per common share before
cumulative effect of accounting
change: |                                 |   |       |                   |   |      |        |      
|                                                                     | Basic and diluted  as reported |   | $     | (0.55             | ) |      |        | (1.15 | )
|                                                                     | Basic and diluted  pro forma   |   | $     | (0.55             | ) |      |        | (1.00 | )
|Net loss as reported                                                 |                                 | $ | (30.5 | )                 |   |      | (112.8 | )    
|Pro formanet loss                                                    |                                 | $ | (38.9 | )                 |   |      | (100.0 | )    
|Loss per common share:                                               |                                 |   |       |                   |   |      |        |      
|                                                                     | Basic and diluted  as reported |   | $     | (0.46             | ) |      |        | (1.43 | )
|                                                                     | Basic and diluted  pro forma   |   | $     | (0.55             | ) |      |        | (1.28 | )





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The pro formaasset retirement obligation liability balances as if SFAS
No. 143 had been adopted on January 1, 2002, are as follows:

(Unaudited; $ in millions)

|                                                                   |  |   |       | 
|------------------------------------------------------------------ |  | - | ----- | 
|Pro formaasset retirement obligation
liability  January 1, 2002   |  | $ | 138.1 | 
|Pro formaasset retirement obligation
liability  December 31, 2002 |  | $ | 149.0 | 

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets
that have indefinite useful lives are not amortized, but rather tested at least
annually for impairment. Intangible assets that have finite useful lives will
continue to be amortized over their useful lives. Upon completion of the
transitional impairment tests, the fair value of three of the Companys
international wire and cable reporting units was determined to be less than the
related carrying amount. The resulting impairment loss recognized upon
adoption of SFAS No. 142 in the first quarter of 2002 was $33.0 million,
pre-tax ($22.9 million after-tax) and was recognized as a cumulative effect of
a change in accounting principle.

Subsequently, the Company completed its annual goodwill impairment test as
of December 31, 2002, with no additional impairments. The Company will
continue to test its goodwill annually as of December 31 unless events occur or
circumstances change between annual tests that would more likely than not
reduce the fair value of a reporting unit below its carrying amount.

The changes in the carrying amount of goodwill for the year ended December
31, 2002, and nine months ended September 30, 2003, are as follows:

(Unaudited; $ in millions)

|                                                |  |           |       |          |  |       |       |   |  |  |       |  
|----------------------------------------------- |  | --------- | ----- | -------- |  | ----- | ----- | - |  |  | ----- | -
|                                                |  | Specialty |       | Wire and |  |       |       |  
|                                                |  | Chemicals |       | Cable    |  |       |       |  
|                                                |  | Segment   |       | Segment  |  | Total
|                                                |  |           |       |          |  |      
|Balance as of
December 31, 2001                 |  | $         | 88.5  |          |  |       | 54.6  |   |  |  | 143.1 |  
|Impairment losses upon
adoption of SFAS
No. 142 |  |           |      |          |  |       | (33.0 | ) |  |  | (33.0 | )
|Foreign currency translation adjustments        |  |           | (19.4 | )        |  |       |      |   |  |  | (19.4 | )
|                                                |  |           |       |          |  |       |       |   |  |  |       |  
|Balance as of
December 31, 2002                 |  |           | 69.1  |          |  |       | 21.6  |   |  |  | 90.7  |  
|Foreign currency translation adjustments        |  |           | 8.3   |          |  |       |      |   |  |  | 8.3   |  
|                                                |  |           |       |          |  |       |       |   |  |  |       |  
|Balance as of
September 30, 2003                |  | $         | 77.4  |          |  |       | 21.6  |   |  |  | 99.0  |  
|                                                |  |           |       |          |  |       |       |   |  |  |       |  




CHANGES IN FINANCIAL CONDITION

Working Capital

During the first nine months of 2003, net working capital balances
(excluding cash and cash equivalents and debt) increased $10.2 million. This
increase resulted primarily from:



| |  |  | an $89.5 million increase in accounts receivable primarily due
to higher sales (approximately $115 million), an increase in a
partners portion of cash calls (approximately $16 million), timing
of collections (approximately $18 million), and higher net accounts
receivable in the securitization program (approximately $4 million);
partially offset by a net decrease in income taxes receivable
primarily associated with refunds received (approximately $66
million);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a $22.9 million decrease in mill and leach stockpiles;                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | a $19.9 million decrease in inventories due to higher copper
sales (approximately $34 million) and higher molybdenum sales
(approximately $8 million); partially offset by increases in
Columbian Chemicals inventory primarily due to a scheduled plant
turn-                                                                                                                                                                                                                 





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| |   |  | around in the 2003 fourth quarter and foreign currency impact
(approximately $10 million), and an increase in Wire and Cables
inventory (approximately $12 million) primarily reflecting seasonally
low inventories at year-end 2002;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a $13.1 million decrease in deferred income tax asset primarily
due to the reclassification of amounts to long-term deferred income
tax liability; and                                                                                
|
| |  |  | a $19.2 million increase in accrued income taxes due to higher
foreign taxes (approximately $40 million); partially offset by
approximately $16 million of payments net of refunds.                                                   

Debt

At September 30, 2003, our total debt was $2,020.7 million, compared with
$2,110.6 million at year-end 2002. Our ratio of debt to total capitalization
was 41.0 percent and 42.3 percent at September 30, 2003, and December 31, 2002,
respectively.

Debt reductions in the 2003 third quarter included the prepayment of $24
million of long-term debt at the Companys Cerro Verde copper mine in Peru.
Cerro Verde now has no long-term debt.

In May 2003, the Company terminated $375 million of fixed-to-floating
interest rate swaps associated with corporate debt maturing in 2005 and 2007.
In the 2003 second quarter, we received cash proceeds of $35.9 million; $34.6
million was reflected as a deferred gain on the balance sheet and will be
amortized over the remaining life of the underlying debt using the effective
interest method.

As of September 30, 2003, the Company had no borrowings under its $1
billion revolving credit facility that is available, provided compliance with
covenant requirements, until its scheduled maturity on May 10, 2005.

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. Under SFAS No. 4, all gains and
losses from extinguishment of debt were required to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. This Statement eliminates SFAS No. 4 and, thus, the exception to
applying Accounting Principles Board (APB) Opinion No. 30 to all gains and
losses related to extinguishments of debt. As a result, gains and losses from
extinguishment of debt should be classified as extraordinary items only if they
meet the criteria in APB No. 30. Applying the provisions of APB No. 30 will
distinguish transactions that are part of an entitys recurring operations from
those that are unusual or infrequent or that meet the criteria for
classification as an extraordinary item. As a result of this Statement being
adopted by the Company on January 1, 2003, we have reclassified the 2002 third
quarter extraordinary item for debt extinguishment costs to a recurring item.

Capital Expenditures and Investments

Capital expenditures and investments for the first nine months of 2003
were $52.9 million for PDMC, $27.6 million for PDI and $25.8 million for other
Corporate-related activities. Capital expenditures and investments for the
first nine months of 2002 were $65.3 million for PDMC, $19.1 million for PDI
and $4.1 million for other Corporate-related activities. We expect capital
expenditures and investments for the year 2003 to approximate $180 million,
comprising approximately $100 million for PDMC, approximately $50 million for
PDI, and approximately $30 million for Corporate and other. These capital
expenditures and investments are expected to be funded primarily from operating
cash flow and cash reserves.

Dividends

For the first nine months of 2003, Phelps Dodge has declared quarterly
dividends of $5.0625 per mandatory convertible preferred share amounting to
$10.1 million.

Other Matters

Based on discussions with the Staff of the Securities and Exchange
Commission regarding the balance sheet classification of certain mining
concessions, primarily mining concessions containing proven and probable ore
reserves and mineralized material at the Companys South American mines, the
Company has reclassified such mining concessions from Property, plant and
equipment, net to Intangible assets. Additionally, previously reported
historical amounts have been reclassified for comparative purposes. Refer to
Note 3 for further discussion.

On July 11, 2003, Phelps Dodge amended its Form S-3 to combine the
outstanding $150





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-63-

million outstanding shelf registration into a new $750 million shelf
registration. On July 15, 2003, this shelf registration statement was declared
effective by the SEC.

Contractual Obligations

The following tables summarize Phelps Dodges contractual obligations at
September 30, 2003, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods for short-term debt, long-term debt
(including capital lease obligations) and take-or-pay contracts. The following
table, as of September 30, 2003, reflects an update of only the major changes
to the similar table presented in the Companys Form 10-K at December 31, 2002:

Debt and Take-or-Pay Contracts as of September 30, 2003:

(Unaudited; $ in millions)

|                      |  |       |         |        |  |           |       |  |  |  |       | 
|--------------------- |  | ----- | ------- | ------ |  | --------- | ----- |  |  |  | ----- | 
|                      |  |       |         |        |  | Less Than |       |  |  | 
|                      |  | Total |         | 1 Year |  | 1-3 Years
|                      |  |       |         |        |  |          
|Short-term debt       |  | $     | 48.5    |        |  |           | 48.5  |  |  |  |      | 
|Long-term debt        |  |       | 1,972.2 |        |  |           | 124.4 |  |  |  | 520.8 | 
|Take-or-pay contracts |  |       | 562.2   |        |  |           | 151.3 |  |  |  | 198.9 | 

|                      |  |           |       |         |  |       |         | 
|--------------------- |  | --------- | ----- | ------- |  | ----- | ------- | 
|                      |  |           |       |         |  | After
|                      |  | 4-5 Years |       | 5 Years
|                      |  |           |       |        
|Short-term debt       |  | $         |      |         |  |       |        | 
|Long-term debt        |  |           | 274.3 |         |  |       | 1,052.7 | 
|Take-or-pay contracts |  |           | 122.3 |         |  |       | 89.7    | 

Our take-or-pay contracts primarily include contracts for electricity
($261.8 million), contracts for petroleum-based feedstock for conversion into
carbon black ($144.3 million), contracts for natural gas ($38.1 million), and
transportation and port fee commitments ($49.0 million). Approximately 80
percent of our take-or-pay electricity obligations are through PD Energy
Services, the legal entity used to manage power for PDMC at generally
fixed-priced arrangements. PD Energy Services has the right and the ability to
resell the electricity as circumstances warrant. Obligations for
petroleum-based feedstock for conversion into carbon black are for specific
quantities, and ultimately will be purchased based upon prevailing market
prices at the time. These petroleum-based products may be re-sold to others if
circumstances warrant. Obligations for natural gas provide for deliveries of
specified volumes, at market-based prices, primarily to our carbon black
operation in Brazil. Transportation obligations total $37.8 million primarily
for exporting cathode produced at El Abra and Cerro Verde and copper in
concentrate at Candelaria and for importing sulfuric acid to El Abra. Our
carbon black facility in the United Kingdom has port fee commitments of $11.2
million.

Guarantees

In November 2002, FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of an obligation assumed under the guarantee. FIN 45 also requires
significant new disclosures by guarantors, in both interim and annual financial
statements, about obligations associated with guarantees issued. FIN 45
disclosure requirements were adopted for our year ended December 31, 2002; the
initial recognition and measurement provisions were adopted on a prospective
basis to guarantees issued or modified after December 31, 2002. There were no
guarantees issued in the first nine months of 2003 that had a material impact
on our financial statements.

Other Items that May Affect Liquidity

On October 16, 2003, a fire occurred at the Metcalf solution extraction
(SX) plant, one of four SX plants at our Morenci mine. The fire severely
damaged four of 10 mixer-settler tanks at the Metcalf SX plant. Six of the
units tanks have resumed operation, and the mine has increased flows through
its other SX plants to meet production targets. We expect the fires impact on
the cost of production in the 2003 fourth quarter to be approximately $5
million to $10 million. The impact beyond the fourth quarter is expected to be
minimal. Phelps Dodge has a global all-risk property insurance policy that
provides for both property damage and business interruption; however, we do not
expect any insurance recoveries as our per-occurrence and annual aggregate
deductibles are higher than the projected Morenci claim.

New Mexico and Colorados mined-land reclamation laws require financial
assurance covering the future cost of reclamation. In contrast, Arizonas Mine
Land Reclamation Act permits a company to satisfy financial assurance
requirements by demonstrating it has financial strength to fund future
reclamation costs identified in an approved reclamation plan. An
investment-grade bond rating is one of the financial strength tests under the
Arizona Act. Phelps Dodges senior unsecured debt currently carries an
investment-





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-64-

grade rating albeit at the lowest level in that category. Additionally,
the Company currently meets another financial strength test in Arizona that is
not ratings dependent.

The cost of surety bonds (the traditional source of financial assurance)
has increased significantly during the past two years. Also, many surety
companies are now requiring an increased level of collateral supporting the
bonds. If surety bonds are unavailable, the Company could be required to post
other collateral or possibly cash or cash equivalents directly in support of
financial assurance obligations.

Diesel Fuel and Natural Gas Price Protection Programs

We purchase significant quantities of diesel fuel and natural gas to
operate our facilities as an input to the manufacturing process and as input
for electricity generation and copper refining.

To reduce the Companys exposure to price increases in these energy
products, the Company enters into energy price protection programs. Our diesel
fuel and natural gas price protection programs consist of purchasing a
combination of out-of-the-money (OTM) call option contracts and fixed-price
swaps. The OTM call option contracts give the holder the right, but not the
obligation, to purchase a specific commodity (diesel fuel or natural gas) at a
pre-determined price, or strike price. OTM call options are options that
have a strike price above the current market price for that commodity. Call
options allow the Company to cap the commodity purchase cost at the strike
price of the option while allowing the Company to participate in commodity
price reductions below the strike price. Swaps allow us to establish a fixed
commodity purchase price for delivery during a specific future period.

As of September 30, 2003, our domestic mining diesel fuel price protection
program, which started in 2000, had outstanding diesel fuel option contracts in
place to hedge approximately 22.2 million gallons of diesel fuel, or 54.3
percent of our consumption forecast through September 2004. As of September
30, 2002, our domestic diesel fuel price protection program had 12.8 million
gallons of diesel fuel hedged. Gains and losses on these hedge transactions
were substantially offset by a similar amount of gain or loss on the underlying
forecast diesel fuel purchases.

As of September 30, 2003, our international mining diesel fuel price
protection program had outstanding diesel fuel option contracts in place to
hedge approximately 2.7 million gallons of diesel fuel, or 71.9 percent of our
consumption forecast through December 2003. Gains and losses on these hedge
transactions were substantially offset by a similar amount of gain or loss on
the underlying forecast diesel fuel purchases.

As of September 30, 2003, our domestic natural gas price protection
program, which started in 2001, had outstanding natural gas option contracts in
place to hedge approximately 9.4 million decatherms of natural gas, or 74.2
percent of our consumption forecast through December 2004. As of September 30,
2002, our domestic natural gas price protection program had outstanding natural
gas option contracts in place to hedge approximately 0.4 million decatherms of
natural gas. Gains and losses on these hedge transactions were substantially
offset by a similar amount of gain or loss on the underlying forecast natural
gas purchases.




Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in the Companys market risk during
the first nine months of 2003. For additional information on market risk,
refer to pages 51 and 93 through 97 of our report on Form 10-K for the year
ended December 31, 2002.




Item 4. Controls and Procedures

The Company maintains a system of disclosure controls and procedures that
is designed to ensure information required to be disclosed by the Company is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, in a timely manner.

An evaluation of the effectiveness of this system of disclosure controls
and procedures was performed under the supervision and with the participation
of the Companys management, including the Companys chief executive officer
and chief financial officer, as of the end of the period covered by this
report. Based upon this evaluation, the Companys management, including the
Companys chief executive officer and chief financial officer, concluded that
the current system of controls and procedures is effective.

The Company maintains a system of internal control over financial
reporting. There has been no change in the Companys internal control over
financial reporting that occurred during the Companys third fiscal quarter
that has materially





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affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.




Part II. Other Information




Item 1. Legal Proceedings

1. Reference is made to paragraph VII of Part II, Item 3, Legal
Proceedings, of the Companys Form 10-K for the year ended December 31, 2002.

The Companys wholly owned subsidiary, Cyprus Amax Minerals Company
(Cyprus), is the plaintiff in an action entitled Cyprus Amax Minerals Company
v. Asarco Incorporated, 99 Civ. 11198 (LMM), which was filed on November 9,
1999, in the U.S. District Court for the Southern District of New York. On
September 12, 2003, after the close of discovery and in accordance with an
Order of the Court, Cyprus served Asarco with a First Amended Complaint that,
among other things, incorporates additional factual allegations based on
information learned during discovery and asserts new causes of action against
Asarco. On September 26, 2003, Asarco served Cyprus with an answer to the
First Amended Complaint that, among other things, omits all of the
counterclaims previously asserted by Asarco against Cyprus and the Company in
this action. On October 10, 2003, the parties entered into a Stipulation in
which Asarco formally dismissed with prejudice all counterclaims previously
asserted against Cyprus and the Company in this action, and on October 14,
2003, that Stipulation was filed with the Court.

2. Reference is made to paragraph X of Part II, Item 3, Legal
Proceedings, of the Companys Form 10-K for the year ended December 31, 2002.

A Consent Decree was lodged in the U.S. District Court for the District of
Arizona on September 16, 2003, to resolve allegations of Clean Water Act
violations at the United Verde Mine. The Consent Decree specifies the terms
for settlement of the Clean Water Act claims, under which the Company will
undertake certain improvement and reclamation projects and pay a civil penalty
of $220,142. The Consent Decree is subject to a public comment period and
Court approval.

3. Reference is made to paragraph XIII of Part II, Item 3, Legal
Proceedings, of the Companys Form 10-K for the year ended December 31, 2002.

Chino Mines Company (Chino), Phelps Dodge Tyrone, Inc. (Tyrone), and Cobre
Mining Company (Cobre) are continuing their efforts to obtain approved closure
permits from the New Mexico Environment Department (NMED) under the New Mexico
Water Quality Act and closeout plans approved by the Mining and Minerals
Division (MMD) of the Energy, Minerals and Natural Resources Department under
the New Mexico Mining Act.

NMED issued Chinos closure permit on February 24, 2003. Since the
closure permit was issued, Chino has engaged in discussions to resolve the
amount and form of financial assurance required by NMED and MMD and the details
of the closeout plan approval by MMD. To allow additional time to finalize
applicable documentation and to hold a public hearing as required under the
Mining Act, on September 24, 2003, MMD issued an order extending the deadline for
Chinos closeout plan approval to November 24, 2003 (from September 24, 2003).
The public hearing is expected to be held on November 13, 2003, and MMD is
expected to take action on the closeout plan following consideration of public
comments. Chinos closure permit has been appealed by third parties to the
Water Quality Control Commission. Chino filed a motion to dismiss the appeal
due to the failure to follow required procedures. If the appeal is not
dismissed, a hearing is set for January 2004.

NMED issued Tyrones closure permit on April 8, 2003, and Tyrones
deadline for closeout plan approval is April 8, 2004. As a result of
agreements on financial assurance announced in May and October 2003, a
framework for financial assurance for Tyrone has been established. This
arrangement is subject to public comment. Tyrone and one other party have
appealed certain portions of the closure permit and a hearing before the Water
Quality Control Commission on those appeals is set for October 27, 2003.

Cobre has not yet received its NMED closure permit.

4. Reference is made to paragraph XIX of Part II, Item 3, Legal
Proceedings, of the Companys Form 10-K for the year ended December 31, 2002.

The Company and Columbian Chemicals Company, together with several other
companies, have been named as defendants in an action entitled Technical
Industries, Inc. v. Cabot Corporation, et al., filed on January 30, 2003, in
the U.S. District Court for the District of Massachusetts,





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and approximately 13 other actions originally filed in the same and three
other U.S. district courts, on behalf of a purported class of all individuals
or entities who purchased carbon black directly from the defendants from
January 30, 1999, to January 30, 2003. The complaints in these actions, which
allege that the defendants fixed the price of carbon black and engaged in other
unlawful activities in violation of the U.S. antitrust laws, seek treble
damages in an unspecified amount and attorneys fees. The Judicial Panel on
Multidistrict Litigation has ordered that all these actions be consolidated for
pretrial proceedings in the District of Massachusetts under the caption In re
Carbon black Antitrust Litigation. It is anticipated that plaintiffs will
shortly file an amended, consolidated complaint in these actions. The Company
and Columbian Chemicals Company, together with several other companies, have
also been named in an action entitled Level Construction, Inc. v. Cabot
Corporation, et al., filed in Superior Court of the state of California for the
county of San Francisco (and seven other actions filed in the same and other
California Superior Courts) on behalf of a purported class or indirect
purchasers of carbon black in the state of California from as early as November
1998 to the present. The complaint alleges similar claims by indirect
purchasers under California state law and seek treble damages in an unspecified
amount and attorneys fees. A petition to coordinate these actions in San
Francisco is pending. The Company believes that all these claims are without
merit and intends to defend the lawsuits vigorously.

5. In November 2002, the U.S. Environmental Protection Agency (EPA)
issued a unilateral administrative order (UAO) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) to the
Companys wholly owned subsidiary, Western Nuclear, Inc., and two other
companies, Kerr McGee Corporation and Fremont Lumber Company (collectively, the
PRPs) requiring the companies to perform certain remedial design (RD) and
remedial action (RA) work at the White King/Lucky Lass Uranium Mines site near
Lakeview, Oregon. The PRPs do not believe the UAO was lawfully issued because
EPA failed to recognize the joint responsibility of the U.S. government under
applicable laws and to perform non-discretionary duties to ensure federal
government responsibility for remediating the site prior to issuance of the
UAO. The PRPs notified the EPA of their intent to sue and obtain, among other
things, a judicial determination of the illegality of the UAO.

The PRPs voluntarily commenced and undertook the RD work (but not RA work)
required by the UAO, and advised the EPA of their position and progress. From
January 2003 through July 2003, the PRPs and EPA exchanged letters expressing
their respective positions concerning the validity of the UAO. On July 31,
2003, the EPA rejected the PRPs position, notifying them that penalties are
accruing for the alleged violations of the UAO and that the purported penalties
through the end of July 2003 total approximately $5.2 million.

On September 19, 2003, the PRPs served a complaint on the Acting
Administrator of the EPA, which seeks to have the federal district court of
Oregon declare the UAO unlawful for failure to comply with the requirement
under CERCLA to ensure federal government participation in remedying the site.
Fremont Lumber Company, et al. v. Horinko,No. 03-CV-1073-AS (D. Ore). As of
September 30, 2003, the EPA had not answered the complaint, nor had it
instituted an action to enforce compliance with the UAO or to recover purported
penalties allegedly accruing against the PRPs.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Any exhibits required to be filed by the Company are listed in
the Index to Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | During the quarter ended September 30, 2003, the Company filed
the following Current Reports on Form 8-K: (i) Current Report on Form
8-K bearing cover date of July 11, 2003, in which the Company
reported under Item 5 that beginning with its Form 10-Q for the
quarter ended June 30, 2003, the Company will reclassify mining
concessions as intangible assets, and previously reported historical
amounts will be reclassified for comparative purposes; (ii) Current
Report on Form 8-K bearing cover date of July 28, 2003, in which the
Company reported under Item 9 and 12 that it had issued a press
release announcing financial results for the three- and six-months
ended June 30, 2003; (iii) Current Report on Form 8-K bearing cover
date of July 31, 2003, in which the Company reported under Item 5
that it had issued a press release announcing that one of its wholly
owned subsidiaries has agreed to





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| |  |  | acquire the one-third general
partnership
interest in Chino Mines Company in New Mexico currently held by
Heisei Minerals Corporation; and (iv) Current Report on Form 8-K
bearing cover date of October 6, 2003, in which the Company reported
under Item 5 that the Company and the state of New Mexico have
amended the agreement to provide for financial assurance required as
part of the closure and closeout plans related to Chino, Tyrone and
Cobre.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PHELPS DODGE CORPORATION
(Corporation or Registrant)

|      |                  |                               
|----- | ---------------- | ------------------------------
|Date: | October 29, 2003
|By:   |                  | /s/ Stanton K. Rideout        
|      |                  | Stanton
K. Rideout            
|      |                  | Vice President and Controller 
|      |                  | (Principal Accounting Officer)




Index to Exhibits

|      |  |                                                                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Additional form of Restricted Stock Letter (graduated vesting) under the
Corporations 2003 Stock Option and Restricted Stock Plan (the 2003 Plan),
effective September 2, 2003 (SEC File No. 1-82).                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                        
|      |  | Note: Omitted from the filing pursuant to the Instruction to Item 601 (b)
(10) are any actual agreement between the Corporation and certain officers
under the 2003 Plan, which contain subsequently similar provisions to the
above-described Exhibit.                                                
|      |  |                                                                                                                                                                                                                                                                                                        
|11    |  | Computation of per share earnings.                                                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                        
|12    |  | Computation of ratios of total debt to total capitalization.                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                        
|15    |  | Letter from PricewaterhouseCoopers LLP with respect to unaudited interim
financial information.                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                        
|31    |  | Certifications of J. Steven Whisler, Chairman, President and Chief Executive Officer
of the Company, and Ramiro G. Peru, Senior Vice President and Chief
Financial Officer of the Company, pursuant to Rule 13a-14(a) of the
Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
|      |  |                                                                                                                                                                                                                                                                                                        
|32    |  | Certifications of J. Steven Whisler, Chairman, President and Chief Executive Officer
of the Company, and Ramiro G. Peru, Senior Vice President and Chief
Financial Officer of the Company, pursuant to 18 United States Code
Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.