Freeport-McMoRan 2008 Annual Report Download - page 22

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Management’s Discussion and Analysis
London Gold Prices
Through January 30, 2009
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.
Metals Week Molybdenum Dealer Oxide Prices
Through January 30, 2009
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.
CRITICAL ACCOUNTING ESTIMATES
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
20 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report
$350
$450
$550
$650
$750
$850
$950
$1,050
92 0094 0296 04 0698 08
dollars per ounce
92 0094 0296 04 0698 08
dollars per pound
$5
$10
$15
$20
$25
$30
$35
$40