Freeport-McMoRan 2008 Annual Report Download - page 32

Management’s Discussion and Analysis
North America Copper Mines
We currently have five operating copper mines in North America –
Morenci, Sierrita, Bagdad and Safford in Arizona, and Tyrone
in New Mexico. In addition to copper, the Morenci, Sierrita and
Bagdad mines produce molybdenum as a by-product. All of these
mining operations are wholly owned, except for Morenci, an
unincorporated joint venture, in which we own an 85 percent
undivided interest.
The North America copper mines include open-pit mining,
sulfide ore concentrating, leaching and solution extraction/
electrowinning (SX/EW) operations. A majority of the copper
produced at our North America copper mines is cast into copper
rod by our Rod & Refining operations. Rod and wire sales to
outside wire and cable manufacturers represented approximately
77 percent of North America copper sales in 2008. The remainder
of our North America copper sales is primarily in the form of
copper cathode or copper concentrate.
In response to the severity of the declines in copper and
molybdenum prices and the deterioration of market conditions
in fourth-quarter 2008, operating plans were revised at our
North America copper mines. The revised operating plans
reflect a 50 percent reduction in mining and crushed-leach rates
at Morenci, a 50 percent reduction in mining and stacking
rates at the Safford mine, a 50 percent reduction in the mining
rate at the Tyrone mine and a suspension of mining and milling
activities at the Chino mine. The revised operating plans also
include the deferral of capital projects, including the
incremental expansion projects at the Sierrita and Bagdad
mines and the planned restart of the Miami mine. The revised
operating plans also incorporate the impacts of lower costs for
energy, acid and other consumables, and reduced labor costs.
Our operating plans for the North America copper mines will
continue to be reviewed and additional adjustments may be
made as market conditions warrant.
Operating Data. Following is summary operating data for the
North America copper mines for the years ended December 31,
2008, 2007 and 2006. The operating data for 2007 combines
our historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007, and 2006 reflects
Phelps Dodge pre-acquisition data. As the pre-acquisition data
represents the results of these operations under Phelps Dodge
management, such combined data is not necessarily indicative of
what past results would have been under FCX management or
of future operating results.
2008 2007
a
2006
a
Operating Data, Net of Joint Venture Interest
Copper (millions of recoverable pounds)
Production
1,430 1,320 1,305
Sales, excluding purchases
1,434 1,332 1,303
Average realized price per pound $ 3.07 $ 3.10
b
$ 2.29
b
Molybdenum (millions of recoverable pounds)
Production (by-product)
c
30 30 31
100% Operating Data, Including Joint Venture Interest
SX/EW operations
Leach ore placed in stockpiles
(metric tons per day) 1,095,200 798,200 801,200
Average copper ore grade (percent) 0.22 0.23 0.30
Copper production (millions of
recoverable pounds) 943 940 1,013
Mill operations
Ore milled (metric tons per day) 249,600 223,800 199,300
Average ore grade (percent):
Copper 0.40 0.35 0.33
Molybdenum 0.02 0.02 0.02
Copper recovery rate (percent) 82.9 84.5 85.0
Production (millions of recoverable pounds):
Copper 599 501 414
Molybdenum (by-product) 30 30 31
a. The North America copper mines’ operating data for 2007 combines our historical
data beginning March 20, 2007, with Phelps Dodge pre-acquisition data through
March 19, 2007, and 2006 reflects Phelps Dodge pre-acquisition data. As the pre-
acquisition data represents the results of these operations under Phelps Dodge
management, such combined data is not necessarily indicative of what past results
would have been under FCX management or of future operating results.
b. Before charges for mark-to-market accounting adjustments on the copper price
protection programs, amounts were $3.25 per pound for 2007 and $3.06 per pound
for 2006.
c. Reflects by-product molybdenum production from the North America copper mines.
Sales of by-product molybdenum are reflected in the Molybdenum division.
2008 Compared with 2007
Copper sales from the North America mines totaled 1.4 billion
pounds in 2008, compared with 1.3 billion pounds for the
combined year 2007. The increase in copper sales volumes
during 2008 primarily reflected additional copper production
from the Safford mine, which began production in December
2007. Copper sales volumes from our North America copper
mines are expected to approximate 1.1 billion pounds in 2009
and by-product molybdenum production is expected to
approximate 28 million pounds in 2009. The decrease in 2009
copper sales volumes primarily reflects the effects of curtailed
production rates at our North America copper mines. If we
continue operating at reduced rates, production at our North
America copper mines for 2010 would be expected to decline by
an additional 200 million pounds because of impacts of 2009
mining activities on 2010 leaching operations.
30 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report