SAMPLE. Company Risk Highlights KEY TAKEAWAYS. Corporate Governance. Insider Hedging. Executive Compensation Benchmarking

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1 CFRA EXEC COMP BESPOKE Freeport McMoran Copper & Gold Inc. (FCX) Updated: January 7, 1 Company Risk Highlights CFRA provides multiple views of a company s risk. Each risk metric should be evaluated only within the framework of the methodology applied. For example, the earnings quality risk metric (QuickScore) is not comparable to the company s sustainability score (IVA). Please note that as metrics are derived from various research groups, we do our best to include the most recent update. Also note that research for global companies is based on their ADR. KEY TAKEAWAYS Company Overview Ticker: Industry: FCX Metal Mining While total shareholder returns at Freeport-McMoran Copper & Gold (FCX) has reflected the commodity boom, so has executive compensation. The company ranks in the top 99th percentile for CEO pay among S&P 5 peers and also among the materials industry sector. Furthermore, executive payouts are magnified by (1) total compensation paid to the executive chairman/ former CEO, which is at the same level as the current CEO; and () a series of hedging contracts involving company stock held by insiders. This may raise corporate governance concerns as total compensation outstrips returns to investors and as the hedging of company stock by insiders removes the risk from performance-based pay while allowing further gains. Corporate Governance Executive Chairman James R. Moffet received total compensation of $36.8 million, on par with CEO total compensation of $39.5 million for Richard C. Adkerson. Medium The amount of funding for the company s Annual Incentive Plan (AIP) is equal to.65% of operating cash flow, as long as the company s five-year return on investment is 6% or greater. This target may seem insufficiently challenging considering that during the five-year period ending in 1, the average ROI was %. In addition, this may subject the pool that is used to fund the plan to a higher degree of management subjectivity. Insider Hedging Messrs. Richard C. Adkerson (CEO), James R. Moffet (Executive Chairman/founder), and B.M. Rankin, Jr. (director/ founder) are engaged in a type of backdoor insider trading through the hedging of company stock that locks in gains while maintaining share ownership. These off-market transactions involve the use of derivatives which are more difficult to track than regular inside trades because details are limited to the fine print of footnotes at the bottom of Form 4s. Hedging may undermine the alignment of interests between management and shareholder by removing the risk from performancebased pay. In addition, hedging contracts often involve a high number of shares greatly exceeding the number of shares sold through regular insider trading. Executive Compensation Benchmarking 1 CEO Total Total Shareholder Returns (Annualized)* Benchmark Compensation 1 Year 3 Year 5 Year Percentile S&P 5 99% 77% 76% 93% Rank Materials 99% 64% 74% 88% High High Freeport McMoRan Copper & Gold Inc. (FCX) is a copper, gold and molybdenum mining company. Its portfolio of assets includes the Grasberg minerals district in Indonesia, 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 recoverable reserves of copper and the gold reserve. It also operates Atlantic Copper, its wholly owned copper smelting and refining unit in Spain. FCX operates seven copper mines in North America: Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Tyrone and Chino in New Mexico. It operates four copper mines in South America: Cerro Verde in Peru, and El Abra, Candelaria and Ojos del Salado in Chile. In Indonesia, PT Freeport Indonesia operates the mines in the Grasberg minerals district. In Africa, Tenke Fungurume S.A.R.L. (TFM) operates the Tenke Fungurume (Tenke) mine. Sources: 1k Filings, Proxy Statements, For 4 Filings, FactSet Data Risk Metrics Earnings Quality (QuickScore) Cash Flow Quality (QuickScore) Governance (GRId) ESG IVA 4 3 Average Analyst: Page 1 Jenny Pak

2 Key Risk Indicators Updated: December 8, 11 Earnings Quality Comparison 1 Risk Highlights 3 Year Peak Market Cap Rio Tinto Plc Southern Copper Corp May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Antofagasta Plc Freeport-McMoRan Copper & Gold Inc. (FCX) Rio Tinto Plc (RIO.LN) Southern Copper Corporation Com (SCCO) Antofagasta Plc (ANTO.LN) 5 Year Price and Volume 5 Year Peak Market Cap 95.9 Debt Coverage Ratio. Altman Z Score.4 CFRA Peer Group RIO SOCO ANTO 5,, 45,, 4,, 35,, 3,, 5,,,, 15,, 1,, 5,, 9 Dec 6 9 Jun 7 9 Dec 7 9 Jun 8 9 Dec 8 9 Jun 9 9 Dec 9 9 Jun 1 9 Dec 1 9 Jun Volume Closing Price Page

3 Corporate Governance Board B.M. Rankin, Jr. (81), who is a director and one of the company founders, received $1,36,187 in total compensation in 1 (9: $1,67,476), including $779,999 in consulting fees (9: $81,78). Compensation The amount of funding for the company s Annual Incentive Plan (AIP) is equal to.65% of operating cash flow, as long as the company s five-year return on investment is 6% or greater. This target may seem insufficiently challenging considering that during the five-year period ending in 1, the average ROI was %. In addition, this may subject the pool that is used to fund the plan to a higher degree of management subjectivity. Executive Chairman James R. Moffett received total compensation of $36.8 million, on par with CEO total compensation of $39.5 million for Richard C. Adkerson. Executives receive a fixed number of stock options on an annual basis regardless of performance (vest ratably over four years). In addition to restricted stock units (RSUs) granted as a portion of the 9 AIP award, executives received additional grants of RSUs (convert to shares of common stock ratably over three years) in recognition of the company s accomplishments during 9, which are reflected for 1 in the Summary Compensation Table, when they were granted. Messrs. Moffett and Adkerson receive high amounts of perquisites. For 1, All Other Compensation reported for Moffett was $1.8 million (9: $1.1 million) and for Adkerson $1.6 million (9: $813,3), including: Other See INSIDER HEDGING OF COMPANY STOCK section Page 3

4 Compensation Benchmark Updated: December 8, 11 Executive Name Executive Rank Title FYE Richard C. Adkerson CEO President and Chief Executive Officer 1/31/1 CEO Salary Bonus Stock Awards Option Awards Non Equity All Other Total Incentive Payout Compensation Compensation Disclosed Fair Value: Richard C. Adkerson $,5, $ $5,818,49 $15,4, $1,, $5,797,4 $39,535,534 Benchmarking: Industry Materials (188 companies) Benchmarking: S&P 5 (398 companies) Mean $696,586 $1, $ $767,459 $891,444 $154,449 $9,71,46 5th Percentile $447,41 $ $ $ $ $16,315 $6,783,897 5th Percentile $673,5 $ $491,99 $11,77 $469,577 $61,453 $8,145,353 75th Percentile $9, $86,89 $1,88,53 $737,7 $1,435,56 $191,674 $11,35,6 9th Percentile $1,117,576 $333,447 $3,975,579 $1,754,936 $,37,598 $318,41 $14,46,465 Minimum $ $ ($6,) $ $ $ $5,797,4 Maximum $3,47, $5,4, $31,1,9 $41,334,17 $1,, $5,797,4 $8,83,351 Mean $1,18,949 $45,38 $ $,6,3 $,318,487 $34,75 $15,791,54 5th Percentile $88,584 $ $1,499,997 $ $933,537 $54,616 $11,459,131 5th Percentile $1,,693 $ $3,75,878 $1,473,634 $1,85,55 $155,984 $14,98,653 75th Percentile $1,81,138 $ $5,376,477 $,944,1 $,834,5 $31,91 $17,938,779 9th Percentile $1,574,15 $1,41,75 $7,85,939 $4,816,33 $4,615, $631,951 $3,51,37 Minimum $ $ $ $ $ $ $5,797,43 Maximum $4,55, $7,5, $41,833,39 $8,6, $31,575, $5,797,4 $9,15,351 Other NEOs Title Salary Bonus Stock Awards Option Awards Non Equity All Other Total Incentive Payout Compensation Compensation James R. Moffett Chairman of the Board $,5, $ $5,818,49 $15,4, $1,, $3,14,497 $36,75,989 Kathleen L. Quirk Michael J. Arnold EVP, Chief Financial Officer and Treasurer $65, $ $1,967,559 $4,66, $,6, $149,39 $9,99,798 EVP and Chief Administrative Officer $55, $ $1,71,677 $3,7,8 $,, $146,18 $8,318,657 Page 4

5 Insider Hedging of Company Stock BACKGROUND A number of insiders are engaged in a type of backdoor insider trading through the hedging of company stock that locks in gains while maintaining share ownership. These off-market transactions involve the use of derivatives which are more difficult to track than regular inside trades because details are usually buried in the fine print of footnotes at the bottom of Form 4s. In addition, data firms on which investors rely for a quick overview on insider trading information do not always clearly specify whether transactions are hedging-related or if any shares are pledged at all. While executives benefit from the ability to monetize assets, diversify a portfolio, hedge against share price depreciation, and defer tax liabilities while still retaining beneficial ownership over shares, hedging exacerbates the agency problem by undermining the alignment of interests between management and shareholder by removing the risk from performance-based pay. Yet hedging contracts often involve a high number of shares greatly exceeding the number of shares sold through regular insider trading. While a number of companies already include provisions on hedging as part of their insider trading policies citing the attenuation of aligned interests between executives and shareholders, many companies still allow for transactions with pre-approval and policies may only apply to executives and not necessarily all employees and directors. FCX DIRECTORS HEDGE COMPANY STOCK CEO Richard Adkerson and co-founders James Moffett and B. M. Mack Rankin, Jr. have gained from the use of hedging contracts. Besides locking into a floor price below which the value of their shares will not fall, they have also used early termination options for extra gains. For example, following the market low point in the beginning of 9 as the economy was showing signs of recovery, Moffet, terminated in May 9 three outstanding contracts covering 1.5 million shares (adjusted for the February 11 :1 stock split). Although his charge for early termination at the time was $8.75 million as FCX s share price had risen to $5.81, he was able to retain his shares whose value at what would have been the settlement dates for two of the three contracts ended up far exceeding the amount at which he terminated allowing him to benefit from additional upside. Furthermore, he was able to enter into a new PVF over the same number of shares, receiving almost $6 million. In March 9, Rankin terminated a contract over 5, shares receiving $8.5 million and retaining his shares as FCX s share price of $6.19 at the time was far below the floor price stipulated of $3.7. By the end of the year, his shares were worth over $ million. In December 8, when FCX s share price was below $9, Adkerson also terminated three contracts over 59,46 shares receiving $11 million and retaining his shares. By what would have been the first settlement date of the first of those three contracts in August 1, FCX s share price had risen above $35. (See table of FCX transactions on following page.) Page 5

6 Insider Transactions Updated: December 8, 11 Insider Name Rankin, Jr., B.M. (Director) Adkerson, Richard C. (President and CEO) (Chairman) Adkerson, Richard C. Rankin, Jr., B.M. Adkerson, Richard C. Rankin, Jr., B.M. Adkerson, Richard C. Contract Settlement/ Maturity Date No. Shares Pledged (Post Stock Split) Share Price (Adjusted) at Maturity Date/ Termination Instrument Contract Initiation Date Floor Price (Adjusted) Ceiling Price (Adjusted) Cash Settlement Amount No. Shares Transferred Contract 3/3/1 3/3/11, $31.33 $46.53 ($,45,) $5.4 Contract 8/6/9 8/8/11 5, $4.19 $46.38 $16,16,5 $ ,73 Pre Paid Contract 5/8/9 11/3/14 1,5, $.8 $46.46 $5,75,938 TBD TBD Contract 5/8/9 11/3/14 3, $.8 $46.46 TBD TBD TBD Note Settled in cash by Rankin based on difference between ceiling price and closing price on maturity plus brokerage fees Adkerson agreed to sell up to 5, shares for $3.5 per share on 8/6/11 Contract 5/16/8 1/1/11 1,16 $45.63 $9.78 $7,886,566 $39.4/$8.43 Terminated on 1/4/8 Contract 1/31/7 3/15/13 171,598 $5.5 $89.59 TBD TBD TBD Contract 9/5/7 9/5/1 6, $4.3 $67.15 TBD TBD TBD Contract 4/1/6 4/5/11 5, $3.7 $39.93 $8,417,5 $53.8/$6.19 Terminated on 3//9 Contract 1/6/5 5/6/11 119,66 $18.73 $35.8 $1,171,788 $49.8/$8.43 Terminated on 1/4/8 Pre Paid Contract 8/11/5 8/11/1 4, $1.35 $8.8 $6,157,595 $ ,3 Contract 8/4/5 8/4/1 5, $15.69 $8.45 $1,79, $36.4/$8.43 Terminated on 1/4/8 Contract 7/6/5 /15/11 6, $15.78 $4.68 ($3,71,35) $53.43/$5.1 Terminated on 5/8/9 Contract /17/5 8/11/1 3, $16.7 $5.77 ($1,553,4) $35./$5.1 Terminated on 5/8/9 Contract 1/6/4 1/6/9 6, $14.6 $.59 ($3,47,17) $38.5/$5.1 Terminated on 5/8/9 Page 6

7 Financial Risk Indicators Updated: December 8, 11 Earnings QuickScore (QS) 1 Cash Flow QuickScore 1 3/1 Earnings QS Peer Group Average 3/1 Earnings QS Peer Group Average 3Q8 4Q8 1Q9 Q9 3Q9 4Q9 1Q1 Q1 3Q1 4Q1 1Q11 Q11 3Q11 3Q8 4Q8 1Q9 Q9 3Q9 4Q9 1Q1 Q1 3Q1 4Q1 1Q11 Q11 3Q11 Earnings QS Industry Average Earnings QS Industry Average Earnings QS Class Action Risk Average Risk 3 1 Cash Flow QS Class Action Risk 3 Average Risk 1 3Q8 4Q8 1Q9 Q9 3Q9 4Q9 1Q1 Q1 3Q1 4Q1 1Q11 Q11 3Q11 3Q8 4Q8 1Q9 Q9 3Q9 4Q9 1Q1 Q1 3Q1 4Q1 1Q11 Q11 3Q11 Earnings Class Action Risk Earnings Class Action Risk Earnings QS Peer Comparison Cash Flow QS Peer Comparison Q8 4Q8 1Q9 Q9 3Q9 4Q9 1Q1 Q1 3Q1 4Q1 1Q11 Q11 3Q11 3Q8 4Q8 1Q9 Q9 3Q9 4Q9 1Q1 Q1 3Q1 4Q1 1Q11 Q11 3Q11 LEAP CLWR PCS USM LEAP CLWR PCS USM Page 7

8 Governance Risk Updated: December 8, 11 Board Structure Factor 87.5% of the board is independent and was elected by shareholders (GRId Question ID: 1) The chairman of the board is an independent director (GRId Question ID: 14) 1.% of the nomination committee is independent (GRId Question ID: 19) 1.% of the compensation committee is independent (GRId Question ID: 5) 1.% of the audit committee is independent (GRId Question ID: 31) The CEO does not serve on an excessive number of outside boards (GRId Question ID: 37). non-executive(s) serve on an excessive number of outside boards (GRId Question ID: 38) All directors attended at least 75% of the board meetings or had a valid excuse for absences (GRId Question ID: 45) The company discloses board/governance guidelines (GRId Question ID: 46) Outside directors met without management present (GRId Question ID: 47). director(s) received withhold/against votes of 5% or greater at the last annual meeting (GRId Question ID: 49).% of directors were involved in material RPTs (GRId Question ID: 5) There are no directors involved in RPTs (GRId Question ID: 51) The company has a plurality vote standard without a director resignation policy (GRId Question ID: 5) Impact 1. All rights reserved. This document may not be repro Page 8

9 CFRA EXEC COMP: Freeport McMoran Copper & Gold Inc. (FCX) Executive Compensation Risk Updated: December 8, 11 Page 9

10 CFRA EXEC COMP: Freeport McMoran Copper & Gold Inc. (FCX) Executive Compensation Risk Updated: December 8, 11 Page 1

11 ESG IVA Rating Stakeholder Capital 3.7 RATING COMMENT Freeport-McMoRan Copper & Gold Inc. has been downgraded to 'B' from 'BB'. Freeport McMoRan (FCX) has been troubled by ESG-related problems for a long time, mostly related to operations at its Grasberg mine located in the Papua province of Indonesia. The problems culminated this year when the workforce at the Grasberg mine went on strike for three months, not only shutting down operations at the company's largest mine but also resulting in nine deaths. Attacks and difficult conditions continue to plague the mine. To manage its other ESG risks and challenges, the company has implemented many strong programs such as a fatality reduction program, reclamation planning, partnerships with external groups, and training for its employees. However, we are concerned that signs remain that the company will likely pursue opportunities despite overarching ESG risks. For example, in 9 and 1 the company's board unanimously voted down a shareholder resolution proposing the addition of an environmental expert to the board, despite a 33.% shareholder vote for the resolution. BATHURST RESOURCES LTD HEALTH AND SAFETY: SECOND QUARTILE (ABOVE AVERAGE) BHP BILLITON LIMITED BHP BILLITON PLC FCX ranks in the second quartile with both injury metrics and policies that are better than the industry average, although high BOLIDEN AB exposure to poor labor practices and some indications of problems keep the company below industry leaders. The company CAMECO CORPORATION faces high risks of hazardous working conditions because of the nature of its business and because its operations are in regions with generally high rates of labor fatalities such as in Indonesia and the Democratic Republic of Congo, where nearly 5% of its COAL INDIA LIMITED workforce is located. In addition, the company's operations are increasingly going underground, which statistically has about CONSOL ENERGY INC. 4% higher rates of injury than above ground mines. CUDECO LIMITED BIODIVERSITY AND LAND USE: BOTTOM QUARTILE FCX is exposed to above average risks for biodiversity concerns particularly in connection with its Grasberg mine, which is located in a biologically diverse area of Indonesia and next to a nature reserve. FCX is also highly expanding into other areas with high biodiversity value such as in the Congo rainforest and in the rainforests and mountains of South America. Based on capital expenditure for exploration, the company's most targeted growth area is South America. Beyond risks at the Grasberg mine, the company's operations in Africa and the Americas are at high risk of coming into conflict with traditional land and resource uses. Specifically, recent problems with contaminated water resources in the US are likely to drain the support of local communities (See Toxic Releases section). TOXIC RELEASES: BOTTOM QUARTILE The company ranks in the bottom quartile for this key issue mainly because of the damage caused by its tailings disposal at the Grasberg mine, legacy problems from Phelps Dodge, as well as the numerous fines and violations faced by the company. Cop- Environment Human Capital Strateg ic Gov ernance IVA Competitive Set ALCOA INC. IVANHOE MINES LTD ALPHA NATURAL RESOURCES, INC. KAGARA LIMITED ALUMINA LIMITED KALAHARI MINERALS PLC ANGLO AMERICAN PLC KAZAKHMYS PLC ANTOFAGASTA PLC KGHM POLSKA MIEDZ S.A. AQUILA RESOURCES LIMITED LYNAS CORPORATION LIMITED ARCH COAL, INC. MACARTHUR COAL LIMITED BANDANNA ENERGY LTD MINARA RESOURCES LIMITED MINCOR RESOURCES NL MINERA FRISCO SAB DE CV MINERAL DEPOSITS LTD MIRABELA NICKEL LIMITED MITSUBISHI MATERIALS CORPORATION CHINA SHENHUA ENERGY COMPANY LIMITED NORSK HYDRO ASA OAO "GORNO METALLURGICHESKAIA COALSPUR MINES LTD KOMPANIIA "NORIL'SKII NIKEL' " OM HOLDINGS LIMITED OZ MINERALS LIMITED DISCOVERY METALS LIMITED PALADIN ENERGY LTD ENERGY RESOURCES OF AUSTRALIA LTD PANAUST LIMITED EQUINOX MINERALS LIMITED PANORAMIC RESOURCES LIMITED ERAMET S.A. PATAGONIA GOLD PLC EURASIAN NATURAL RESOURCES PEABODY ENERGY CORPORATION CORPORATION PLC RIO TINTO LIMITED EXTRACT RESOURCES LIMITED RIO TINTO PLC FIRST QUANTUM MINERALS LTD. SANDFIRE RESOURCES NL FREEPORT MCMORAN COPPER & GOLD INC. SOUTHERN COPPER CORPORATION GLENCORE INTERNATIONAL PLC GLOUCESTER COAL LTD GRUPO MEXICO, S.A.B. DE C.V. GRYPHON MINERALS LTD ILUKA RESOURCES LIMITED INDEPENDENCE GROUP N.L. INMET MINING CORP INTEGRA MINING LIMITED INTERNATIONAL COAL HOLDINGS LIM ITED IVANHOE AUSTRALIA LTD STERLITE INDUSTRIES (INDIA) LTD. SUMITOMO METAL MINING CO.,LTD. TALVIVAARAN KAIVOSOSAKEYHTIOE OYJ TECK RESOURCES LIMITED VEDANTA RESOURCES PLC WALTER ENERGY, INC. WESTERN AREAS NL WHITE ENERGY COMPANY LIMITED WHITEHAVEN COAL LIMITED XSTRATA PLC Page 11

12 per and gold extraction creates a lot of waste from both the heap leaching and electrolysis processes, and also because mineral concentrations are often low, resulting in large quantities of mineral waste. FCX therefore faces high risks related to pollution, spills, and contamination, which can result in regulatory fines and penalties as well as lawsuits and may require the company to incur substantial clean-up costs. The company is implementing many programs to mitigate risks and shows signs of improvement but repeated violations and contamination continue to be a major concern. CORRUPTION AND INSTABILITY: BOTTOM QUARTILE The company ranks in the bottom quartile for this key issue because of the continued violence and political unrest surrounding its Grasberg mine in Indonesia. Regardless of community statements and rules, risks that violence will continue at the mine are high. CARBON EMISSIONS: TOP QUARTILE The company ranks in the top quartile for this key issue because of low exposure to carbon regulations and a clear strategy and achievements related to management of greenhouse gas emissions. FCX has low exposure to carbon regulations as the vast majority of its greenhouse gas (GHG) emissions occur in areas without current regulations limiting emissions (36% of GHG emissions occur in the US and another 36% of emissions occur in Indonesia). The company's only current exposure to GHG regulations is in Europe, where only % of its emissions occur. Although its exposure to regulation is low, the company still creates high levels of GHG emissions as its smelting operations are inherently energy intensive and the many hauling trucks at the company also contribute to high levels of GHG emissions. Motivated by its high energy requirements, its environmental plans, and its reputation, the company has a management structure better than most peers to manage this issue and has several initiatives to lower overall emissions. Page 1

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