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. 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 annual report on Form 10-K for the year ended December 31, 2011, filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to "Cautionary Statement" for further discussion). 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, significant mining operations in North and South America, and the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC). The Grasberg minerals district 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. We also operate Atlantic Copper, our wholly owned copper smelting and refining unit in Spain.

Our results for the second quarter and first six months of 2012, compared with the 2011 periods, primarily reflected lower copper and gold sales volumes and lower realized copper prices. Refer to "Consolidated Results" for further discussion of our consolidated financial results for the three- and six-month periods ended June 30, 2012 and 2011.

Operations and productivity at PT Freeport Indonesia have continued to improve following the first-quarter 2012 work interruptions in connection with efforts to resume normal operations. PT Freeport Indonesia's milling rates averaged 179,500 metric tons of ore per day in second-quarter 2012, compared with the first-quarter 2012 average of 114,800 metric tons of ore per day. Mining operations in the Grasberg open pit are approaching normal levels and underground mining operations at the Deep Ore Zone (DOZ) underground mine continue to be ramped up following the 2011 work stoppages. Mining rates at the DOZ underground mine averaged 45,400 metric tons of ore per day in second-quarter 2012 and are expected to reach 80,000 metric tons of ore per day during fourth-quarter 2012.

During second-quarter 2012, our Climax molybdenum mine began commercial production. Production from the Climax mine is expected to ramp up to a rate of 20 million pounds of molybdenum per year during 2013.

At June 30, 2012, we had $4.5 billion in consolidated cash and cash equivalents and $3.5 billion in total debt. In February 2012, we sold $3.0 billion of senior notes in three tranches with a weighted average interest rate of approximately three percent. We used the proceeds from this offering, plus cash on hand, to redeem the remaining $3.0 billion of our 8.375% Senior Notes. Refer to Note 5 and "Capital Resources and Liquidity - Financing Activities" for further discussion.

In February 2012, our Board of Directors authorized an increase in the cash dividend on our common stock to an annual rate of $1.25 per share ($0.3125 per share quarterly). Refer to Note 5 for further discussion.

At current copper prices, we expect to produce significant operating cash flows in 2012, and expect to use our cash to invest in our development projects, including the underground development projects at Grasberg and the expansion projects at Morenci, Cerro Verde and Tenke, as well as to return cash to shareholders through common stock dividends and/or share repurchases.

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 will continue to adjust our operating strategy as market conditions change. Our financial results vary with fluctuations in market prices for copper, gold and molybdenum and other factors. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Because we cannot control the price of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs and operating cash flow. Discussion of the outlook for each of these measures follows.

Sales Volumes. Consolidated sales from mines for the year 2012 are expected to approximate 3.6 billion pounds of copper, 1.1 million ounces of gold and 81 million pounds of molybdenum, including 885 million pounds of copper, 225 thousand ounces of gold and 20 million pounds of molybdenum for third-quarter 2012. Sales estimates for the year 2012 have been revised from the estimates provided in our quarterly report on Form 10-Q for the period ended March 31, 2012, by approximately 85 million pounds of copper and 60 thousand ounces of gold primarily because of mine sequencing changes and slower underground ramp-up at PT Freeport Indonesia and revisions to El Abra production. The achievement of projected 2012 sales volumes is dependent on a number of factors, including achievement of targeted mining rates, the successful operation of production facilities, the impact of weather conditions and other factors.

Unit Net Cash Costs. Quarterly unit net cash costs will vary with fluctuations in sales volumes and average realized prices for gold and molybdenum. Assuming average prices of $1,600 per ounce of gold and $13 per pound of molybdenum for the second half of 2012, and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mining operations are expected to average approximately $1.47 per pound of copper for the year 2012. The impact of price changes for the second half of 2012 on consolidated unit net cash costs would approximate $0.01 per pound for each $50 per ounce change in the average price of gold, and $0.01 per pound for each $2 per pound change in the average price of molybdenum. Assuming consistent commodity price assumptions, unit net cash costs for 2013 are expected to be lower than 2012 because of projected increased copper and gold volumes at Grasberg. Refer to "Consolidated Results - Production and Delivery Costs" for further discussion of consolidated production and delivery costs.

Operating Cash Flows. Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes and other working capital changes and other factors. Based on projected consolidated sales volumes and unit net cash costs for 2012, and assuming average prices of $3.50 per pound of copper, $1,600 per ounce of gold and $13 per pound of molybdenum for the second half of 2012, consolidated operating cash flows are estimated to approximate $4.0 billion for the year 2012 (net of an estimated $1.2 billion in working capital uses and other tax payments). Projected operating cash flows for the year 2012 also reflect estimated taxes of $1.8 billion (refer to "Consolidated Results - Provision for Income Taxes" for further discussion of our projected consolidated effective annual tax rate for 2012). The impact of price changes for the second half of 2012 on operating cash flows would approximate $80 million for each $0.05 per pound change in the average price of copper, $25 million for each $50 per ounce change in the average price of gold and $40 million for each $2 per pound change in the average price of molybdenum.

World prices for copper, gold and molybdenum can fluctuate significantly. During the period from January 2002 through July 2012, the London Metal Exchange (LME) spot copper price varied from a low of $0.64 per pound in 2002 to a record high of $4.60 per pound in February 2011, the London Bullion Market Association (London) gold price fluctuated from a low of $278 per ounce in 2002 to a record high of $1,895 per ounce in September 2011, and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of $2.43 per pound in 2002 to a record high of $39.25 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 annual report on Form 10-K for the year ended December 31, 2011.

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This graph presents LME spot copper prices and the combined reported stocks of copper at the LME, the New York Mercantile Exchange (COMEX) and the Shanghai Futures Exchange from January 2002 through July 2012. From 2006 through most of 2008, limited supplies, combined with growing demand from China and other emerging economies, resulted in high copper prices and low levels of inventories. In late 2008, slowing consumption, turmoil in the U.S. financial markets and concerns about the global economy led to a sharp decline in copper prices, which reached a low of $1.26 per pound in December 2008. Copper prices have since improved from 2008 lows, attributable to a combination of strong demand from emerging markets and limitations on available supply. During second-quarter 2012, LME spot copper prices ranged from $3.29 per pound to $3.89 per pound and averaged $3.57 per pound. Average LME copper prices were lower in second-quarter 2012, compared with first-quarter 2012, reflecting concerns about global growth, led by slower Chinese growth, the situation in Europe and a slowing U.S. economy. Nonetheless, global exchange inventories remain low and represent less than two weeks of global demand.

We believe the underlying fundamentals of the copper business remain positive, supported by the significant role of copper in the global economy and limited supplies. Future copper prices are expected to be volatile and are likely to be influenced by demand from China and emerging markets, 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 $3.44 per pound on July 31, 2012.

This graph presents London p.m. gold prices from January 2002 through July 2012. During second-quarter 2012, gold prices ranged from $1,540 per ounce to $1,678 per ounce and averaged $1,609 per ounce. Gold prices closed at $1,622 per ounce on July 31, 2012.

[[Image Removed]] This graph presents the Metals Week Molybdenum Dealer Oxide weekly average prices from January 2002 through July 2012. In late 2008, molybdenum prices declined significantly as a result of the financial market turmoil and a decline in demand. During second-quarter 2012, the weekly average price of molybdenum ranged from $13.13 per pound to $14.23 per pound and averaged $13.83 per pound. The Metals Week Molybdenum Dealer Oxide weekly average price was $12.18 per pound on July 31, 2012. Average Metals Week Molybdenum Dealer Oxide prices were lower in second-quarter 2012, compared with first-quarter 2012, reflecting weaker demand and cautious buying activity in response to the global economic situation.

                              CONSOLIDATED RESULTS
                                           Three Months Ended                  Six Months Ended
                                                June 30,                           June 30,
                                          2012             2011             2012             2011
Financial Data (in millions, except
per share amounts)
Revenuesa,b                          $    4,475         $   5,814        $   9,080        $  11,523
Operating incomeb,c                  $    1,311      d  $   2,757   d    $   3,045   d    $   5,693   d
Net income attributable to FCX       $      710      d  $   1,368   d,e  $   1,474   d,e  $   2,867   d,e
common stockholders
Diluted net income per share
attributable to FCX common
stockholders                         $     0.74      d  $    1.43   d,e  $    1.55   d,e  $    3.00   d,e
Diluted weighted-average common
shares outstanding                          953               956              954              956

Mining Operating Data
Copper (millions of recoverable
pounds)
Production                                  887               967            1,720            1,917
Sales, excluding purchases                  927             1,002            1,754            1,928
Average realized price per pound     $     3.53         $    4.22        $    3.61        $    4.24
Site production and delivery costs   $     2.01         $    1.63        $    1.98        $    1.62
per poundf
Unit net cash costs per poundf       $     1.49         $    0.93        $    1.38        $    0.87
Gold (thousands of recoverable
ounces)
Production                                  251               351              503              817
Sales, excluding purchases                  266               356              554              836
Average realized price per ounce     $    1,588         $   1,509        $   1,639        $   1,466
Molybdenum (millions of recoverable
pounds)
Production                                   20                22               41               42
Sales, excluding purchases                   20                21               41               41
Average realized price per pound     $    15.44         $   18.16        $   15.39        $   18.13

a. Includes the impact of adjustments to provisionally priced concentrate and cathode sales recognized in prior periods (refer to "Revenues" below for further discussion).

b. Refer to Note 11 for a summary of revenues and operating income by business segment.

c. We defer recognizing profits on intercompany sales until final sales to third parties occur. Refer to "Operations - Atlantic Copper Smelting & Refining" for a summary of net impacts from changes in these deferrals.

d. Includes charges for adjustments to environmental obligations and related litigation reserves totaling $66 million ($53 million to net income attributable to common stockholders or $0.06 per share) for the second quarter and first six months of 2012 and $49 million ($40 million to net income attributable to common stockholders or $0.04 per share) for the second quarter and first six months of 2011.

e. Includes losses on early extinguishment of debt totaling $54 million ($0.06 per share) for second-quarter 2011, $149 million ($0.16 per share) for the first six months of 2012 and $60 million ($0.06 per share) for the first six months of 2011 (Refer to Note 5 for further discussion).

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

Revenues
Consolidated revenues totaled $4.5 billion in second-quarter 2012 and $9.1 billion for the first six months of 2012, compared with $5.8 billion in second-quarter 2011 and $11.5 billion for the first six months of 2011. Consolidated revenues include the sale of copper concentrates, copper cathodes, copper rod, gold, molybdenum and other metals by our North and South America copper mines, the sale of copper concentrates (which also contain significant quantities of gold and silver) by our Indonesia mining operations, the sale of copper cathodes and cobalt hydroxide by our Africa mining operations, the sale of molybdenum in various forms by our Molybdenum operations, and the sale of copper cathodes, copper anodes, and gold in anodes and slimes by Atlantic Copper.

Following is a summary of changes in our consolidated revenues between periods (in millions):