In Management's Discussion and Analysis of Financial Condition and Results of Operations, "we," "us" and "our" refer to Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries, including, except as otherwise stated, Phelps Dodge Corporation (Phelps Dodge) and its subsidiaries, which we acquired on March 19, 2007. You should read this discussion in conjunction with our financial statements, the related Management's Discussion and Analysis of Financial Condition and Results of Operations and the discussion of our "Business and Properties" in our Form 10-K for the year ended December 31, 2007, filed with the U.S. Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results. In particular, the financial results included for the first nine months of 2007 include the operations of Phelps Dodge only since March 20, 2007, not the full nine-month period because of the accounting treatment for the acquisition. References to "Notes" are Notes included in our "Notes to Consolidated Financial Statements." Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations, all references to earnings or losses per share are on a diluted basis, unless otherwise noted.

We are one of the world's largest copper, gold and molybdenum mining companies in terms of reserves and production. Our portfolio of assets includes the Grasberg minerals district in Indonesia, which contains the largest single recoverable copper reserve and the largest single gold reserve of any mine in the world based on the latest available reserve data provided by third-party industry consultants; significant mining operations in North and South America; and the Tenke Fungurume development project in the Democratic Republic of Congo (DRC).

In North America, we have six operating copper mines - Morenci, Bagdad, Sierrita and Safford in Arizona and Chino and Tyrone in New Mexico. All of these mining operations are wholly owned, except for Morenci. We have an 85 percent undivided interest in Morenci, an unincorporated joint venture.

In South America, we have four operating copper mines - Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. We own a 53.56 percent interest in Cerro Verde, an 80 percent interest in both Candelaria and Ojos del Salado and a 51 percent interest in El Abra.

We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama. PT Freeport Indonesia operates under an agreement, called a Contract of Work, with the Government of Indonesia that allows us to conduct exploration, mining and production activities in a 24,700-acre area called Block A located in Papua, Indonesia. Under the Contract of Work, PT Freeport Indonesia also conducts exploration activities in an approximate 500,000-acre area called Block B in Papua. All of PT Freeport Indonesia's proven and probable mineral reserves and current mining operations, including the Grasberg minerals district, are located in Block A.

Our Molybdenum operations include our wholly owned Henderson mine in Colorado, and also includes our wholly owned Climax mine in Colorado, which has been on care-and-maintenance status since 1995. On November 10, 2008, we announced the suspension of construction activities associated with the restart of the Climax molybdenum mine (refer to "Development Projects" for further discussion).

We also operate Atlantic Copper S.A. (Atlantic Copper), a wholly owned subsidiary, located in Spain. Atlantic Copper's operations involve the smelting and refining of copper concentrates and the marketing of refined copper and precious metals in slimes. Additionally, PT Freeport Indonesia owns a 25 percent interest in PT Smelting, an Indonesian company, which operates a copper smelter and refinery in Gresik, Indonesia.

Phelps Dodge also had an international manufacturing division, Phelps Dodge International Corporation (PDIC), which manufactured engineered wire and cable products principally for the global energy sector. On October 31, 2007, we sold PDIC, and as a result, the operating results of PDIC have been reported as discontinued operations in the consolidated statements of income.

Since completion of the Phelps Dodge acquisition in March 2007, our business strategy has been focused on defining the potential of our resources and developing expansion and growth plans to deliver additional volumes to a growing marketplace. Following the achievement of $10 billion in debt reduction during 2007, our financial policy was designed to use our cash flows to invest in growth projects with high rates of return and return excess cash flows to shareholders in the form of dividends and share purchases.

In response to the dramatic shift in global economic conditions that occurred in September and October 2008, we are revising our near-term business strategy. The sudden downturn in global economic and credit conditions and accompanying financial market turmoil has resulted in a sharp decline in commodity prices. Copper prices fell from $3.98 per pound at June 30, 2008, to $2.91 per pound at September 30, 2008, and further to $1.82 per pound at November 10, 2008. While our long-term strategy of developing our resources to their full potential remains in place, the severity of the decline in prices and the present economic and credit environment will limit our ability to invest in growth projects and require us to make adjustments to our near-term plans.

While we view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world's economy, we are responding aggressively to the sudden downturn and uncertain near-term outlook. Operating plans are being revised to target reductions in costs, defer or eliminate capital projects, defer exploration expenditures and potentially curtail production at high-cost operations. Our near-term strategy will be designed to protect liquidity while preserving our large mineral resources and growth options for the longer term.

As an initial step, we announced in October 2008 a total of $500 million of capital cost reductions in 2008 and 2009, which included a decision to defer incremental expansion projects at Sierrita and Bagdad and the planned restart of the Miami mine. We are targeting additional capital cost reductions and will defer discretionary spending pending improvement in market conditions. Spending on projects in the early stages of planning and construction are being reviewed. On November 10, 2008, we announced plans to defer start-up of the Climax molybdenum mine, previously expected to restart in 2010. We are also considering the timing of the development of the $450 million El Abra sulfide project. In addition, we are reducing equipment purchases which were previously planned to support expansion plans. Refer to "Development Projects" and "Capital Resources and Liquidity - Investing Activities" for further discussion.

We are preparing revised plans at each of our operations to establish lower operating and administrative costs, reflect lower commodity-based input costs and reduced capital spending budgets. Certain operations may be curtailed in response to market conditions and exploration spending will also be reduced. We expect to provide an update on our revised operating plans in December 2008.

We have a $1.5 billion revolving credit facility which matures in March 2012. At September 30, 2008, no amounts were drawn and availability totaled approximately $1.4 billion after considering outstanding letters of credit. We plan to use the facility from time to time for working capital and short term funding requirements but do not intend to use the facility for long-term funding items. We will continue to monitor the capital markets for additional long-term funding opportunities but under current conditions, such opportunities are costly and limited.

Additionally, in mid-September 2008, we suspended our share purchase program in response to financial market turmoil. The Board of Directors reviews our dividend, which is currently $2.00 per share on our common stock, and financial policy on an ongoing basis and will be considering the impact of the recent decline in commodity prices on our operating and financial plans.

The graphs below illustrate the movements in metals prices from 1992 through November 10, 2008. World prices for copper, gold and molybdenum have fluctuated significantly during this period. The London Metal Exchange (LME) copper price varied from a low of $0.60 per pound in 2001 to record highs above $4.00 per pound in July 2008, the London gold price fluctuated from a low of approximately $250 per ounce in 1999 to record highs above $1,000 per ounce in March 2008, and the Metals Week Molybdenum Dealer Oxide prices ranged from a low of $1.82 per pound in 1992 to a high of $40.00 per pound in 2005. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in our "Risk Factors" contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2007.

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* Excludes Shanghai stocks, producer, consumer and merchant stocks.

The graph above presents LME copper prices and reported stocks of copper at the LME and New York Mercantile Exchange and Commodity Exchange (COMEX) through November 10, 2008. During the period 2003 to 2006, global consumption exceeded production, evidenced by the decline in exchange warehouse inventories. During the last few years, combined LME and COMEX stocks remained at low levels and totaled approximately 208 thousand metric tons at September 30, 2008, which represented approximately four days of global consumption. Disruptions associated with strikes and other operational issues, combined with growing demand from China and other emerging economies resulted in low levels of inventory in 2006, 2007 and during the first nine months of 2008. The recent turmoil in the United States (U.S.) banking and financial markets and concerns about the global economy negatively impacted copper prices late in the third quarter of 2008. During third-quarter 2008, LME copper prices were volatile ranging from $2.91 per pound to $4.08 per pound, averaging $3.49 per pound and closing at $2.91 per pound on September 30, 2008. Subsequent to September 30, 2008, copper prices have been significantly impacted as a result of heightened financial market turmoil and demand related concerns. During October 2008, LME copper prices ranged from $1.67 per pound to $2.89 per pound, and closed at $1.82 per pound on November 10, 2008. Despite the significant decline in copper prices, global inventories remain at low levels and supply issues continue. While the near-term outlook is weak and uncertain, we believe the underlying fundamentals of the copper business remain positive supported by supply side constraints and the absence of significant new development projects. Future copper prices may continue to be volatile and are expected to be influenced by demand from China, economic activity in the U.S. and other industrialized countries, the timing of the development of new supplies of copper, production levels of mines and copper smelters and the level of direct participation by investors.

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The strengthening of the U.S. dollar in recent months resulted in lower gold prices. During third-quarter 2008 gold prices ranged from approximately $741 per ounce to $986 per ounce and averaged approximately $872 per ounce. The U.S. dollar continued to strengthen during October 2008, and on November 10, 2008, London gold prices closed at approximately $753 per ounce.

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Molybdenum markets have been strong in recent years with growing demand and limited supply. During third-quarter 2008, molybdenum prices ranged from $32.25 per pound to $33.88 per pound and averaged $33.50 per pound. While molybdenum prices have been relatively stable during the first nine months of 2008, prices have declined recently as a result of the financial market turmoil and demand-related concerns. During October 2008, the Metals Week Molybdenum Dealer Oxide price ranged from $24.25 per pound to $31.40 per pound, and was $12.00 per pound on November 10, 2008.

                        CONSOLIDATED RESULTS and OUTLOOK


                                                                         Nine Months Ended
                                          Third-Quarter                  September 30,
                                      2008            2007           2008             2007
Financial Data (in millions, except
per share amounts)
Revenues                             $ 4,616 a,b     $ 5,066 a,c   $ 15,729 a,b     $ 12,755 a,c
Operating income                       1,133 a,b,d,e   1,877 a,c,d    5,582 a,b,d,e    5,403 a,c,d
Income from continuing operations
applicable
to common stockf                         523             763          2,592            2,311
Net income applicable to common              b,d,e           c,d,g
stockf                                   523             775          2,592 b,d,e,g    2,355 c,d,g
Diluted net income per share of
common stockh:
Continuing operations                $  1.31         $  1.85       $   6.20         $   6.46
Discontinued operations                    -            0.02              -             0.12
Diluted net income per share of      $       b,d,e   $       c,d,g $                $
common stock                            1.31            1.87           6.20 b,d,e,g     6.58 c,d,g
Diluted average common shares
outstandingh,i                           447             447            449              380

Operating Data - Sales from Mines,
Excluding Sales
of Purchased Metal
Copper
Consolidated share (millions of        1,016                          2,869
recoverable pounds)                                      949                           2,479
Average realized price per pound     $  3.14         $  3.53 c     $   3.43         $   3.43 c
Site production and delivery costs
per poundj                           $  1.66         $  1.31       $   1.58         $   1.21
Unit net cash costs per poundj       $  1.29         $  1.05       $   1.21         $   0.57
Gold
Consolidated share (thousands of         307                            852
recoverable ounces)                                      269                           2,137
Average realized price per ounce     $   869         $   695       $    897         $    669
Molybdenum
Consolidated share (millions of           19                             59
recoverable pounds)                                       16                              33
Average realized price per pound     $ 32.11         $ 27.89       $  31.78         $  26.22

a. As discussed in Note 10, we have revised the presentation of our operating divisions to better reflect management's view of the consolidated FCX operations, and have also reclassified amounts for the 2007 periods to conform with the current period presentation. Following is a summary of revenues and operating income by operating division for the third quarters and first nine months of 2008 and 2007 (in millions):

                           Third-Quarter 2008           Third-Quarter 2007
                                       Operating                    Operating
                        Revenues        Income       Revenues        Income
North America copper
mines                  $     1,402    $       361   $     1,526    $       561
South America copper
mines                        1,008            388         1,368            819
Indonesia                      802            260           837            399
Molybdenum                     683            211           519            112
Rod & Refining               1,485              5         1,736              7
Atlantic Copper
Smelting & Refining            625              1           688              1
Corporate, other &          (1,389 )          (93 )      (1,608 )          (22 )
eliminations
Total FCX              $     4,616    $     1,133   $     5,066    $     1,877



                           Nine Months Ended            Nine Months Ended
                           September 30, 2008           September 30, 2007
                                       Operating                    Operating
                         Revenues       Income        Revenues       Income
North America copper
mines                  $      4,469   $     1,688   $      2,835   $       955
South America copper
mines                         4,043         2,272          2,869         1,737
Indonesia                     2,870         1,313          4,308         2,953
Molybdenum                    2,117           644          1,034           139
Rod & Refining                4,856            20          3,781            18
Atlantic Copper
Smelting & Refining           2,014             9          1,761            10
Corporate, other &           (4,640 )        (364 )       (3,833 )        (409 )
eliminations
Total FCX              $     15,729   $     5,582   $     12,755   $     5,403

b. Includes charges totaling $66 million ($40 million to net income or $0.09 per share) in third-quarter 2008 and $35 million ($21 million to net income or $0.05 per share) for the first nine months of 2008 for unrealized losses on copper derivative contracts entered into with our U.S. copper rod customers, which will allow FCX to receive market prices in the month of shipment while the customer pays the fixed price they requested.

c. Includes charges to revenues for mark-to-market accounting adjustments on the 2007 copper price protection program totaling $44 million ($26 million to net income or $0.06 per share) and a reduction in average realized copper prices of $0.04 per pound in third-quarter 2007, and $212 million ($129 million to net income or $0.34 per share) and a reduction in average realized copper prices of $0.08 per pound for the first nine months of 2007.

d. Includes the impacts of purchase accounting fair value adjustments associated with the acquisition of Phelps Dodge, which are primarily because of increased carrying values of acquired property, plant and equipment and metal inventories, including mill and leach stockpiles, and also includes amounts for non-operating income and expense mostly related to accretion of the fair values of assumed environmental liabilities (determined on a discounted cash flow basis). These impacts totaled $293 million, $263 million to operating income and $30 million for non-operating income and expenses, ($183 million to net income or $0.41 per share) in third-quarter 2008 and $849 million, $781 million to operating income and $68 million for non-operating income and expenses, ($530 million to net income or $1.18 per share) for the first nine months of 2008.

The impact of purchase accounting fair value adjustments associated with the acquisition of Phelps Dodge totaled $449 million, $445 million to operating income and $4 million for non-operating income and expenses, ($279 million to net income or $0.62 per share) in third-quarter 2007 and $1.0 billion, $1.0 billion to operating income and $4 million for non-operating income and expenses, ($642 million to net income or $1.69 per share) for the first nine months of 2007.

(Refer to Note 10 for a summary of the impacts of purchase accounting fair value adjustments on our business segments for the three-month and nine-month periods ended September 30, 2008 and 2007.)

e. Includes charges for lower-of-cost or market (LCM) inventory adjustments at certain of our North America copper mines totaling $16 million ($11 million to net income or $0.02 per share) in third-quarter 2008 and $22 million ($14 million to net income or $0.03 per share) for the first nine months of 2008.

f. After preferred dividends.

g. Includes net losses on early extinguishment of debt totaling $6 million ($5 million to net income or $0.01 per share) for the first nine months of 2008 associated with an open-market purchase of our 9.5% Senior Notes. The first nine months of 2008 also includes gains on the sales of assets totaling $13 million ($8 million to net income or $0.02 per share).

Net losses on early extinguishment of debt totaling $36 million ($31 million to net income or $0.07 per share) in third-quarter 2007 and $171 million ($141 million to net income or $0.37 per share) for the first nine months of 2007 primarily related to premiums paid and the accelerated recognition of deferred financing costs associated with early repayments of debt. Also includes gains on the sales of assets totaling $47 million ($29 million to net income or $0.06 per share) for third-quarter 2007 and $85 million ($52 million to net income or $0.14 per share) for the first nine months of 2007.

h. Reflects assumed conversion of our 5½% Convertible Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred Stock.

i. On March 19, 2007, we issued 137 million common shares to acquire Phelps Dodge, and on March 28, 2007, we sold 47 million common shares. Common shares outstanding on September 30, 2008, totaled 378 million. Assuming conversion of the instruments discussed in Note h above and including dilutive stock options and restricted stock units, total common shares outstanding would approximate 444 million at September 30, 2008.

j. Reflects per pound weighted average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines. For reconciliations of the actual and pro forma per pound costs by operating division to production and delivery costs applicable to actual or pro forma sales reported in our consolidated financial statements or pro forma consolidated financial results, refer to "Unit Net Cash Costs" included in "Operations" and to "Product Revenues and Production Costs."

Outlook
During September and October 2008, global economic conditions weakened dramatically and there is significant uncertainty about the near-term price outlook for our principal products. While we view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world's economy, we are responding to the sudden downturn and uncertain near-term outlook. Operating plans are being revised to target reductions in costs, defer or eliminate capital projects, defer exploration expenditures and potentially curtail production at high-cost operations. Refer to "Recent Events" for further discussion.

Following is a summary of our actual consolidated sales volumes for the first nine months of 2008 and projected consolidated sales volumes (excluding sales of purchased metal) for the year 2008:

                                                          2008
                                                   First
                                                Nine Months     Full-Year
                                                 (Actual)      (Estimate)
Copper (billions of recoverable pounds):
North America copper mines                               1.1           1.4
South America copper mines                               1.1           1.5
Indonesia                                                0.7           1.1
                                                         2.9           4.0
Gold (millions of recoverable ounces)
Indonesia                                                0.7           1.1
Other                                                    0.1           0.1
                                                         0.8           1.2

Molybdenum (millions of recoverable pounds)a              59            74

a. Includes sales of molybdenum produced as a by-product at our North America and South America copper mines.

Copper sales of approximately 4.0 billion pounds for the year 2008 are expected to be approximately 100 million pounds lower than July estimates and 2008 gold sales of approximately 1.2 million ounces are expected to be approximately 200 thousand ounces lower than July estimates primarily because of a small scale failure at the Grasberg open pit in early September 2008, which limited access to a high grade section of the Grasberg open pit. Remediation activities at Grasberg have been substantially completed and we regained access in October 2008 to the high-grade material previously restricted. Refer to "Operations" for further discussion of sales volumes at our North America and South America copper mines, Indonesia operations and Molybdenum operations.

Consolidated unit net cash costs were $1.29 per pound of copper in third-quarter 2008 and $1.21 per pound of copper for the first nine months of 2008, compared to $1.05 per pound of copper in third-quarter 2007 and $0.57 per pound of copper for the first nine months of 2007. The increase in cash costs over the year ago periods primarily reflects higher commodity-based input costs, principally related to energy and sulfuric acid. Energy costs, which are expected to approximate 25 percent of our consolidated copper production costs for 2008, include annual purchases of approximately 230 million gallons of diesel fuel, 800 thousand metric tons of coal, 6,600 gigawatt hours of electricity and 2 million MMBTU of natural gas. Because energy is a significant portion of our production costs, we have been negatively impacted by higher energy prices. However, as a result of the recent declines in energy, steel and sulfuric acid prices, we expect commodity-based input costs will begin to decline from the levels experienced in third-quarter 2008. Assuming average prices of $2.15 per pound of copper, $800 per ounce of gold and $27 per pound of molybdenum for fourth-quarter 2008, and using recent prices for commodity-based input costs, we estimate our consolidated unit net cash costs would average approximately $1.07 per pound for fourth-quarter 2008 and approximately $1.17 per pound for the year. Projected unit net cash costs for 2008 are higher than the July estimate of $1.10 per pound primarily because of the impact of lower volumes at Grasberg.

We are engaged in capital projects to expand our production volumes, extend our mine lives and develop large-scale underground ore bodies. Capital costs associated with these development activities have also been affected by rising input costs, including equipment, materials and supplies and labor.
Additionally, our development of large-scale underground ore bodies in Indonesia is more sensitive to labor costs than our large-scale open pit and mill processing operations. Accordingly, increasing labor costs without corresponding productivity gains will adversely impact our current and future underground development and operations. Future capital spending plans are being reviewed in response to the impact of recent changes in global economic conditions on commodity prices. Refer to "Development Projects" for further discussion.

In connection with our March 2007 acquisition of Phelps Dodge, acquired . . .