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. The results of operations reported and summarized below are not necessarily indicative of future operating results. In particular, the financial results for 2007 include the operations of Phelps Dodge from March 20, 2007, through December 31, 2007, not the full twelve-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).

Our mining revenues for 2008 include sales of copper (approximately 76 percent), molybdenum (approximately 14 percent) and gold (approximately seven percent). We currently have five operating copper mines in North America, four in South America and the Grasberg minerals district in Indonesia. We also have one operating primary molybdenum mine in North America. During 2008, approximately 60 percent of our consolidated copper production was from our Grasberg, Morenci and Cerro Verde mines, and more than half of our mined copper was sold in concentrate, approximately 27 percent as rod (principally from our North America operations) and approximately 19 percent as cathodes. For 2008, approximately 55 percent of our consolidated molybdenum production was from the Henderson molybdenum mine and approximately 45 percent was produced as a by-product primarily at our North America copper mines. We also produce gold as a by-product at our copper mines, primarily at the Grasberg minerals district in Indonesia, which accounted for approximately 90 percent of our consolidated gold production for 2008. Refer to "Operations" for further discussion of our mining operations.

Prior to March 19, 2007, we operated our Grasberg mine in Indonesia and our wholly owned copper smelting and refining operation at Atlantic Copper in Spain. On March 19, 2007, we acquired Phelps Dodge, a fully integrated producer of copper and molybdenum with mines in North and South America, and several development projects, including Tenke Fungurume in the DRC, which we believe is one of the world's highest potential copper and cobalt concessions. After completion of the Phelps Dodge acquisition, our business strategy was focused on repaying acquisition-related debt, defining the potential of our resources and developing expansion and growth plans to deliver additional volumes to a growing marketplace. During 2007, we repaid $10.0 billion in term loans using a combination of equity proceeds and internally generated cash flows. Because of the significant reduction in debt and historically high prices for copper, molybdenum and gold, our financial policy during most of 2008 was designed to use our cash flow to invest in growth projects with anticipated high rates of return and to return excess cash flows to shareholders in the form of dividends and share purchases.

During fourth-quarter 2008, there was a dramatic decline in copper and molybdenum prices. After averaging $3.05 per pound in 2006, $3.23 per pound in 2007 and $3.61 per pound for the first nine months of 2008, London Metal Exchange (LME) spot copper prices declined to a four-year low of $1.26 per pound in December 2008 and averaged $1.78 per pound in fourth-quarter 2008. Additionally, while molybdenum markets have been strong in recent years with prices averaging approximately $25 per pound in 2006, $30 per pound in 2007 and $33 per pound for the first nine months of 2008, molybdenum prices declined significantly to a four-year low of $8.75 per pound in November 2008 and averaged approximately $16 per pound in fourth-quarter 2008.

Although our long-term strategy of developing our resources to their full potential remains in place, the severity of the decline in copper and molybdenum prices and the deterioration of the economic and credit environment during

fourth-quarter 2008 have limited our ability to invest in growth projects and required us to make adjustments to our near-term plans. Our near-term strategy has been designed to protect liquidity while preserving our large mineral resources and growth options for the longer term; accordingly, our operating and financial plans were revised to reflect the following changes:

· Curtailment of copper production at high-cost North America operations and of molybdenum production at the Henderson molybdenum mine (refer to "Operations" for further discussion);

· Capital cost reductions, including deferral of most of our project development activities and also reduced capital spending on the Tenke Fungurume project and projects in Indonesia (refer to "Development Projects" for further discussion);

· Aggressive cost control, including workforce reductions, reduced equipment purchases that were planned to support expansion projects, a reduction in material and supplies inventory and reductions in exploration, research and administrative costs; and

· The suspension of our annual common stock dividend (refer to "Capital Resources and Liquidity - Financing Activities" for further discussion).

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 have responded to the sudden downturn and uncertain near-term outlook and will continue to adjust our operating strategy as market conditions change.

At December 31, 2008, we had $872 million in consolidated cash ($454 million of which was available to our parent company). We also had $150 million of borrowings and $74 million of letters of credit issued under our $1.5 billion revolving credit facilities, resulting in availability of approximately $1.3 billion ($926 million of which could be used for additional letters of credit). During 2009, we may use the facilities from time to time for working capital and short-term funding requirements, but do not intend to use the facilities for long-term funding. In addition, in February 2009, we completed a public offering of 26.8 million shares of FCX common stock and realized net proceeds of approximately $740 million, which will be used for general corporate purposes (refer to "Capital Resources and Liquidity - Financing Activities" for further discussion). We have no significant debt maturities in the near-term (refer to "Debt Maturities and Other Contractual Obligations").

The sharp declines in copper and molybdenum prices during fourth-quarter 2008, among other factors, significantly impacted our consolidated financial results for 2008. Net loss applicable to common stock totaled $11.3 billion ($29.72 per share) in 2008, which included charges totaling $13.1 billion ($34.29 per share) for long-lived asset and goodwill impairment charges and lower of cost or market (LCM) inventory adjustments. Following is additional discussion of these charges:

· Impairment charges - During fourth-quarter 2008, we evaluated the carrying values of our long-lived assets, including goodwill associated with the acquisition of Phelps Dodge, for impairment. These evaluations resulted in the recognition of impairment charges of $10.9 billion ($6.6 billion to net loss or $17.34 per share) associated with long-lived assets and $6.0 billion ($6.0 billion to net loss or $15.69 per share) associated with goodwill. Refer to Notes 2 and 7 and "Critical Accounting Estimates - Asset Impairments" for further discussion of these impairment charges.

· LCM inventory adjustments - Inventories are required to be recorded at the lower of cost or market. In connection with the March 2007 acquisition of Phelps Dodge, acquired inventories, including long-term mill and leach stockpiles, were recorded at fair value using near-term price forecasts reflecting the then-current price environment and management's projections for long-term average metal prices. As a result of the declines in copper and molybdenum prices during fourth-quarter 2008, we recorded charges for LCM inventory adjustments totaling $782 million ($479 million to net loss or $1.26 per share).

Refer to "Consolidated Results" for further discussion of our consolidated financial results for the years ended December 31, 2008, 2007 and 2006.

Outlook
Following is a summary of our actual results for 2008 and our projected
consolidated sales volumes for 2009:


                                                 2008         2009
                                               (Actual)    (Projected)
Copper (billions of recoverable pounds):
North America copper mines                          1.4             1.1
South America copper mines                          1.5             1.4
Indonesia mining                                    1.1             1.3
Africa mininga                                        -             0.1
                                                    4.1 b           3.9
Gold (millions of recoverable ounces)
Indonesia mining                                    1.2             2.1
South America copper mines                          0.1             0.1
                                                    1.3             2.2

Molybdenum (millions of recoverable pounds)c         71              60

a. Represents projected sales from the Tenke Fungurume copper and cobalt mine, which is expected to commence production during the second half of 2009.

b. Represents the sum of copper sales before rounding.

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

Estimated sales volumes of approximately 3.9 billion pounds of copper for 2009 are lower than 2008 sales of 4.1 billion pounds primarily reflecting the effects of curtailed production rates at our North America copper mines, partly offset by higher volumes in Indonesia as a result of mining in a higher-grade section of the Grasberg open pit and also includes additional volumes from the Tenke Fungurume copper and cobalt project, which is expected to commence production during the second half of 2009. Estimated sales volumes of approximately 2.2 million ounces of gold for 2009 are higher than 2008 sales of 1.3 million ounces as a result of projected mining in a higher-grade section of the Grasberg open pit. Estimated sales volumes of approximately 60 million pounds of molybdenum for 2009 are lower than 2008 sales of 71 million pounds reflecting curtailed production rates at our Henderson molybdenum mine and adjustments to by-product molybdenum production plans at our North and South America copper mines.

Consolidated revenues, operating cash flows and net income vary significantly with fluctuations in the market prices of copper, gold and molybdenum, sales volumes and other factors. Based on projected consolidated sales volumes for 2009 and assuming average prices of $1.50 per pound of copper, $800 per ounce of gold and $9.00 per pound of molybdenum in 2009, our consolidated operating cash flows would approximate $1.0 billion in 2009, which is net of an estimated $0.6 billion for working capital requirements. Working capital requirements for 2009 principally reflect the impact of the declines in copper prices during fourth-quarter 2008 and resulting settlements with customers on 2008 provisionally priced sales. Operating cash flows for 2009 would be impacted by approximately $260 million for each $0.10 per pound change in copper prices, $60 million for each $50 per ounce change in gold prices and $50 million for each $1 per pound change in molybdenum prices.

Assuming average prices of $1.50 per pound of copper, $800 per ounce of gold and $9.00 per pound of molybdenum for 2009, we estimate our consolidated unit net cash costs related to our copper mining operations (after by-product credits) will average approximately $0.71 per pound in 2009, which is lower than consolidated unit net cash costs of $1.16 per pound in 2008 (refer to "Consolidated Results - Production and Delivery Costs" for further discussion). Lower estimated consolidated unit net cash costs in 2009 primarily reflect the effects of reduced energy prices and other commodity-based input costs and lower operating rates. Consolidated unit net cash costs would be impacted by $0.025 per pound for each $50 per ounce change in gold prices and $0.01 per pound for each $1 per pound change in molybdenum prices.

The graphs below illustrate the movements in metals prices from January 1992 through January 2009. World prices for copper, gold and molybdenum have fluctuated significantly during this period. The LME spot copper price varied from a low of $0.60 per pound in 2001 to a high of $4.08 per pound in July 2008, the London gold price fluctuated from a low of approximately $250 per ounce in 1999 to a high of $1,011 per ounce in March 2008, and the Metals Week Molybdenum Dealer Oxide price 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, 2008.

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

The graph above presents LME spot copper prices and reported stocks of copper at the LME and the New York Mercantile Exchange (COMEX) from January 1992 through January 2009. During the period 2003 to 2006, global consumption exceeded production, evidenced by the decline in exchange warehouse inventories. Disruptions associated with strikes and other operational issues, combined with growing demand from China and other emerging economies resulted in low levels of inventory from 2006 through most of 2008. However, slowing consumption has led to increases in inventory levels in recent months, with combined LME and COMEX stocks rising to approximately 370 thousand metric tons at December 31, 2008, compared to approximately 208 thousand metric tons at September 30, 2008. Combined LME and COMEX stocks have increased further to approximately 530 thousand metric tons at January 30, 2009.

Turmoil in the United States (U.S.) financial markets and concerns about the global economy have negatively impacted copper prices in recent months. After averaging $3.05 per pound in 2006, $3.23 per pound in 2007 and $3.61 per pound for the first nine months of 2008, LME spot copper prices declined to a four-year low of $1.26 per pound in December 2008. For the year 2008, LME spot copper prices ranged from $1.26 per pound to $4.08 per pound, averaged $3.15 per pound and closed at $1.32 per pound on December 31, 2008. 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 and

production levels of mines and copper smelters. The LME spot copper price closed at $1.41 per pound on January 30, 2009.

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The graph above presents London gold prices from January 1992 through January 2009. During 2008, the environment for gold has been positive, but volatile. For the year 2008, gold prices ranged from approximately $713 per ounce to $1,011 per ounce and averaged approximately $872 per ounce. Growing investment demand, economic uncertainty and a weak U.S. dollar are continuing to support gold prices. London gold prices closed at approximately $920 per ounce on January 30, 2009.

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The graph above presents the Metals Week Molybdenum Dealer Oxide price from January 1992 through January 2009. While molybdenum markets have been strong in recent years with growing demand and limited supply and prices averaging approximately $25 per pound in 2006, $30 per pound in 2007 and $33 per pound for the first nine months of 2008, molybdenum prices declined significantly in fourth-quarter 2008 as a result of the financial market turmoil and a decline in demand. For the year 2008, the price of molybdenum ranged from approximately $9 per

pound to approximately $34 per pound and averaged $29 per pound. The Metals Week Molybdenum Dealer Oxide price was $9.50 per pound on December 31, 2008, and $9.30 per pound on January 30, 2009.

Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles (GAAP) in the U.S. The preparation of these statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on assumptions that we consider reasonable under the circumstances; however, reported results could differ from those based on the current estimates under different assumptions or conditions. The areas requiring the use of management's estimates are also discussed in Note 1 under the subheading "Use of Estimates." Management has reviewed the following discussion of its development and selection of critical accounting estimates with the Audit Committee of our Board of Directors.

Asset Impairments. We evaluate our long-lived assets (to be held and used) for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable. During fourth-quarter 2008, we concluded that the current economic environment and the significant declines in copper and molybdenum prices represented significant adverse changes in the business, and therefore, evaluated our long-lived assets, other than goodwill and indefinite-lived intangible assets, for impairment as of December 31, 2008, under the two-step model established by Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In addition, goodwill is required to be evaluated at least annually and at any other time if an event or change in circumstances indicates that the fair value of a reporting unit is below its carrying amount. We had selected the fourth quarter of each year to perform our annual impairment test of goodwill.

In evaluating our long-lived assets for recoverability, estimates of after-tax undiscounted future cash flows of our individual mining operations were used, with impairment losses measured by reference to fair value. As quoted market prices are unavailable for our individual mining operations, fair value was determined through the use of discounted estimated future cash flows. The estimated cash flows used to assess recoverability of our long-lived assets and measure fair value of our mining operations were derived from current business plans developed using near-term price forecasts reflective of the current price environment and management's projections for long-term average metal prices and operating costs.

Our asset impairment evaluations, including our annual goodwill impairment test, required us to make several assumptions in determining estimates of future cash flows to determine fair value of our individual mining operations, including near and long-term metal price assumptions; estimates of commodity-based and other input costs; proven and probable reserve estimates, including any costs to develop the reserves and the timing of producing the reserves; and the use of appropriate current escalation and discount rates. Projected long-term average metal prices represented the most significant assumption used in the cash flow estimates. In connection with the March 2007 acquisition of Phelps Dodge, we allocated the $25.8 billion purchase price to the estimated fair values of net assets acquired, including $6.2 billion for goodwill (refer to Note 18 for a summary of the final purchase price allocation). Metal price projections used to value the net assets acquired at the acquisition date ranged from near-term prices of $2.98 per pound for copper declining over an eight-year period to $1.20 per pound and $26.20 per pound for molybdenum declining over a five-year period to $8.00 per pound, reflecting price expectations at that time. Our December 31, 2008, impairment evaluations were based on price assumptions reflecting prevailing copper futures prices for three years, which ranged from approximately $1.40 per pound to $1.50 per pound, and a long-term average price of $1.60 per pound. Molybdenum prices were assumed to average $8.00 per pound.

Our evaluation of long-lived assets, other than goodwill, resulted in the recognition of asset impairment charges totaling $10.9 billion ($6.6 billion to net loss or $17.34 per share) for 2008. Additionally, our annual impairment test of goodwill resulted in the full impairment of goodwill, resulting in the recognition of goodwill impairment charges totaling $6.0 billion ($6.0 billion to net loss or $15.69 per share) for 2008. Neither of these impairment charges had an impact on our operating cash flows.

We believe events that could result in additional impairment of our long-lived assets include, but are not limited to, (i) decreases in future metal prices,
(ii) decreases in estimated recoverable proven and probable reserves and
(iii) any event that might otherwise have a material adverse effect on mine site production levels or costs.

Mineral Reserves and Depreciation, Depletion and Amortization. As discussed in Note 1, we depreciate our life-of-mine mining and milling assets and values assigned to proven and probable reserves using the unit-of-production method based on our estimated recoverable proven and probable copper reserves (for primary copper mines) and estimated recoverable proven and probable molybdenum reserves (for the primary molybdenum mine). We have other assets that we depreciate on a straight-line basis over their estimated useful lives. Our estimates of recoverable proven and probable copper and molybdenum reserves and the useful lives of our straight-line assets impact our depreciation, depletion and amortization expense. These estimates affect the results of operations of our operating segments.

Accounting for depreciation, depletion and amortization represents a critical accounting estimate because the determination of reserves involves uncertainties with respect to the ultimate geology of our reserves and the assumptions used in determining the economic feasibility of mining those reserves, including estimated copper, gold and molybdenum prices and costs of conducting future mining activities. Additionally, changes in estimated recoverable proven and probable reserves and useful asset lives could have a material impact on our results of operations. We perform annual assessments of our existing assets, including a review of asset costs and depreciable lives, in connection with the review of mine operating and development plans. When we determine that assigned asset lives do not reflect the expected remaining period of benefit, we make prospective changes to those depreciable lives.

There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. Ore reserve estimates are based upon engineering evaluations of samplings of drill holes, tunnels and other underground workings. Our estimates of recoverable proven and probable reserves are prepared by and are the responsibility of our employees, and a majority of these estimates are reviewed and verified by independent experts in mining, geology and reserve determination. At December 31, 2008, consolidated recoverable reserves include 102.0 billion pounds of copper, 40.0 million ounces of gold and 2.48 billion pounds of molybdenum. Refer to Note 20 and "Proven and Probable Reserves" for further details of estimated recoverable reserves. These estimates involve assumptions regarding future copper, gold and molybdenum prices, the geology of our mines, the mining methods we use and the related costs we incur to develop and mine our reserves. Changes in these assumptions could result in material adjustments to our reserve estimates, which could result in changes to depreciation, depletion and amortization expense in future periods, with corresponding adjustments to net income. If estimated copper reserves at our mines were 10 percent higher at December 31, 2008, based on our current sales projections for 2009, we estimate that our annual depreciation, depletion and amortization expense for 2009 would decrease by $29 million ($14 million to net income), and a 10 percent decrease would increase depreciation, depletion and amortization expense by $36 million ($17 million to net income).

As discussed in Note 1, we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable. Our long-lived assets include amounts assigned to proven and probable reserves totaling $4.1 billion at December 31, 2008. Changes to our estimates of recoverable proven and probable reserves could have an impact on our assessment of asset impairment. Revisions to our estimates of recoverable proven and probable copper, gold and molybdenum reserves could give rise to an impairment of our assets.

Recoverable Copper. We record, as inventory, applicable costs for copper contained in mill and leach stockpiles that are expected to be processed in the future based on proven processing technologies. Mill and leach stockpiles are evaluated periodically to ensure that they are stated at the lower of cost or market (refer to Note 5 and "Consolidated Results" for further discussion of LCM inventory adjustments recorded in 2008). Accounting for recoverable copper from mill and leach stockpiles represents a critical accounting estimate because (i) it is generally impracticable to determine copper contained in mill and leach stockpiles by physical count, and therefore, requires management to employ . . .