John Marsden

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©2005 Phelps Dodge Corp.1 September 12, 2005

Phelps Dodge’s Approach to Technology

Development and Innovation

John O. MarsdenSenior Vice President, Technology & Product Development



2 ©2005 Phelps Dodge Corp.

Introduction

Technology development and innovation can be a real source ofcompetitive advantage within the copper industry

Mining industry typically spends between 0.1% and 1.0% of salesrevenues on research and technology development

Varies dramatically through copper price cycle

Varies dramatically by company

Phelps Dodge has a rich history of technological innovation




Long, Successful Track Record of Technology Deployment

0

500

1,000

1,500

2,000

2,500

3,000

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

Year

C o p p e r P

r o d u c e d ( m i l l i o n s o f p o u n d s )

• Large scale SX/EW• Computerized haul truck dispatch• GPS ore control• Leach recovery optimization• Concentrate grade enhancement

TyroneSX/EW

MorenciSX/EW

ChinoSX/EW Candelaria 1

Candelaria 2

• “Expert” control systems • Concentrator adaptive control• Mine for leach• Haul truck tire technology• Concentrate leach (2003)

Morenci MFL,El Abra ROM

CyprusAcquisition

CurtailmentCommenced

Chino 1/3Acquisition




Technology Development - Strategic Guidelines

Primary focus on copper extraction

Focus on applied technology development, not fundamental “research”

Center of excellence in selected areasMaterial characterization

Hydrometallurgy

Mineral processing

Reclamation & remediation

Project management rigor

Identification, evaluation, ranking, and prioritization of projects

Stage-gate process

Strong focus on implementation

Institutionalization of best practices

Strategic partnerships/alliances

Collaborative research




Technology Development - Strategic Planning

Updated annually

Clear vision & mission

Identify critical issues

Develop projects & programs to address critical issues

Prioritize projects & programs

Develop execution plans – apply stage gate process Follow up




Stage Gate Process – Technology Development

White - No progress Green - Completed (successfully)Orange - In progress Pass GateFail GateFuture GateBy-pass Gate

ConceptualDevelopment

LaboratoryTesting

Pilot ScaleTesting,Process

Development

&PreliminaryEngineering

ContinuousPilot Scale

Testing,Basic

Engineering,Fatal FlawAnalysis,

HERA

CommercialDemonstra-

tion(if required)

Design,Construction& Operation

BasicEngineering,

FeasibilityStudy

CommercialApplication

Design,Construction

& Operation

STAGE - GATE PROCESS FORTECHNOLOGY DEVELOPMENT

ScopingStudy

2

DemonstrationFeasibility Study

& AR

4

Proof ofDemonstration

5

Post-CompletionEvaluation

7

PreliminaryFeasibility

Study

3

3

CommercialApplicationFeasibility

Study & AR

6

Strategic Fit -Project Rank &Prioritization

10Stage-Gate

D e c i s i o n

B a s i s

A

c t i v i t y




Why Stage Gate?

According to study by Hatch/Washington Institute, the averagecommercial success rate for new technology is;

One in 3,000 at proof-of-concept/scoping stageOne in 30 at pilot plant scale

One in 4 at demonstration scale

Benefits of stage-gate process

Manage risk - fail fast or succeed fastFocus resources on best projects

Manage technology development costs

Downsides with stage-gate process

Miss hidden gems

Kill too early

Limit options


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Technology Development – Phelps Dodge’s Focus Areas

New transformational step-change technologies

Mining

Processing

Continuous improvement of existing operations & technology

Mining

Processing

Effective reclamation and remediation in anticipation ofclosure



Using Technology to Transform Mining Operations

High-speed wirelesscommunications

Full GPS/inertial navigation

Smart autonomous miningequipment

Integrated mine management

systems – real-timeintelligence

Continuous mining process

Large-scale selective mining withlarger equipment

Reduced process variance



Using Technology to Transform Processing Operations

Concentrate leaching, solution extraction and electrowinning

Commercial demonstration proven

Concentrate leaching and direct electrowinningCommercial demonstration in construction

Leaching of low-grade chalcopyrite stockpiles

Commercial demonstration test in progress

Novel electrowinning technologyCommercial demonstration test in progress

New milling technology

High-pressure grinding rolls to be used at Cerro Verde

Material characterization by “QemSCAN”

Commercial operation & application

Environmental remediation technology

Commercial operation



SX/EW Development in 1980s and 1990s

Secondary sulfide

and oxide ores

Primary sulfide

ores Mine

LeachingFlotation

Refining

Smelting

Rod Mill or Customer

SX

EW



0

500

1,000

1,500

2,000

2,500

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

Conventional SX/EW

Example of Technology Transforming Copper Production

(PDC share; millions of pounds)

1983 – 100% conventional2004 – 66% SX/EW



Concentrate Leach Technology Replaces Smelting/Refining

Secondary sulfide

and oxide ores

Primary sulfide

ores Mine

LeachingFlotation

Refining

Smelting

Rod Mill or Customer

SX

EW

ConcentrateLeaching



Concentrate Leach Demonstration Plant at Bagdad

August, 2003

Safety: Zero recordable injuries since December 20, 2002



Bagdad Concentrate Leach Plant Copper Production

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

M a r - 0 3

A p r - 0

3

M a y - 0 3

J u n - 0 3

J u l - 0

3

A u g - 0 3

S e p - 0 3

O c t - 0

3

N o v - 0 3

D e c - 0 3

J a n - 0 4

F e b - 0 4

M a r - 0 4

A p r - 0

4

M a y - 0 4

J u n - 0 4

J u l - 0

4

A u g - 0 4

S e p - 0 4

O c t - 0

4

N o v - 0 4

D e c - 0 4

P r o d u c t i

o n

( l b s )

Production (lbs) Design Basis Production



Note - Use yellow to highlight font colors

(but never titles)

High-Pressure Grinding Rolls

Cerro Verde milling circuit toinclude high pressure grindingrolls (HPGR) instead of SAG mills

Advantages

Higher throughput

Greater energy efficiency

Greater flexibility

Lower unit cost

Disadvantages

Additional capital cost

Financial Impact

Significantly reduces power

consumption and unitproduction costs



Material Characterization – QemSCAN Technology



Using QemSCAN Data to Improve Decisions

TickMarks

Triangle lines

COR AC2

COR AC3

MET AC3

MET AC4

MET AC5

NWX AC2

NWX AC3

NWX AC4

NWX AC5

Ksp

Qz

Se

TickMarks

Triangle lines

COR QSAC1

MET QSAC1

MET QSAC2

MET QSAC3

NWX QSAC1

NWX QSAC2

Ksp

Qz

Se

TickMarks

Triangle lines

COR QSAC1

MET QSAC1

MET QSAC2MET QSAC3

NWX QSAC1

NWX QSAC2

Ksp

Qz

Se

Morenci Alteration Codes – QemSCANData

QemSCAN Alteration Codes – QemSCANData

QemSCAN Alteration Codes – XRD Data

Precision and

accuracy of datagreatly improved

Improves:

Ore control & oretype routing

Process control

Mine design &sequencing

Plant design



Key Enablers for Effective Technology Development

Champion(s)

Vision, capability, experience, dedication

Infrastructure/EnvironmentResearch & development facilities

Operational excellence

Technology implementation capability

Resources

People, money, timeThe devil is in the details

Ability to manage expectations

Communication to key stakeholders

Economic conditionsMaintain initiatives through industry downturns

Make hay when the sun shines

Long term perspective

Senior management, Board, shareholder commitment


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Thank You

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John Marsden