Freeport-McMoRan 2008 Annual Report Download - page 37

Management’s Discussion and Analysis
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 35
Unit net cash costs, after by-product credits, increased to $1.02
per pound of copper in 2007, compared with $0.91 per pound in
2006, primarily reflecting higher costs at El Abra because of lower
copper sales, and also reflected the impact of Cerro Verde’s
voluntary contribution programs. These higher costs were partly
offset by lower unit costs at Cerro Verde in 2007 associated with
significantly higher production resulting from the new
concentrator.
Indonesia Mining
We own 90.64 percent of PT Freeport Indonesia, including
9.36 percent owned through our wholly owned subsidiary, PT
Indocopper Investama. The Government of Indonesia owns the
remaining 9.36 percent of PT Freeport Indonesia. PT Freeport
Indonesia operates under an agreement, called a Contract of
Work, with the Government of Indonesia that allows us to
conduct exploration, mining and production activities in a
24,700-acre area called Block A located in Papua, Indonesia.
Under the Contract of Work, PT Freeport Indonesia also conducts
exploration activities in an approximate 500,000-acre area called
Block B in Papua. All of PT Freeport Indonesia’s proven and
probable mineral reserves and current mining operations,
including the Grasberg minerals district, are located in Block A.
PT Freeport Indonesia produces copper concentrates, which
contain significant quantities of gold and silver. Substantially all
of PT Freeport Indonesia’s copper concentrates are sold under
long-term contracts.
We have established certain unincorporated joint ventures
with Rio Tinto plc (Rio Tinto), an international mining company
with headquarters in London, England. Pursuant to the joint
venture agreement, Rio Tinto has a 40 percent interest in certain
assets and future production exceeding specified annual amounts
of copper, gold and silver through 2021 in Block A of PT Freeport
Indonesia’s Contract of Work, and, after 2021, a 40 percent
interest in all production from Block A. Refer to Note 3 for further
discussion of joint ventures with Rio Tinto.
Operating Data. Following is summary operating data for our
Indonesia mining operations for the years ended December 31,
2008, 2007 and 2006:
2008 2007 2006
Consolidated Operating Data, Net of Joint Venture Interest
Copper (millions of recoverable pounds)
Production 1,094 1,151 1,201
Sales 1,111 1,131 1,201
Average realized price per pound $ 2.36 $ 3.32 $ 3.13
Gold (thousands of recoverable ounces)
Production
1,163 2,198 1,732
Sales 1,182 2,185 1,736
Average realized price per ounce $ 861 $ 681 $ 567
100% Operating Data, Including Joint Venture Interest
Ore milled (metric tons per day):
Grasberg open pit
a
129,800 159,100 184,200
Deep Ore Zone (DOZ)
underground mine
a
63,100 53,500 45,200
Total 192,900 212,600 229,400
Average ore grade:
Copper (percent) 0.83 0.82 0.85
Gold (grams per metric ton) 0.66 1.24 0.85
Recovery rates (percent):
Copper 90.1 90.5 86.1
Gold 79.9 86.2 80.9
Production (recoverable):
Copper (millions of pounds) 1,109 1,211 1,300
Gold (thousands of ounces) 1,163 2,608 1,824
a. Amounts represent the approximate average daily throughput processed at
PT Freeport Indonesia’s mill facilities from each producing mine.
2008 Compared with 2007
PT Freeport Indonesia’s share of sales totaled approximately
1.1 billion pounds of copper and 1.2 million ounces of gold in
2008, compared with 1.1 billion pounds of copper and 2.2 million
ounces of gold in 2007. At the Grasberg mine, the sequencing in
mining areas with varying ore grades causes fluctuations in the
timing of ore production resulting in varying quarterly and annual
sales of copper and gold. Lower gold sales volumes in 2008
resulted from mining in a lower-grade section of the Grasberg
open pit for the first nine months of 2008. PT Freeport Indonesia’s
sales for 2009 are expected to approximate 1.3 billion pounds of
copper and 2.1 million ounces of gold as a result of the expected
mining in a higher-grade section of the Grasberg open pit
throughout 2009.
2007
a
2006
a
By-Product Co-Product By-Product Co-Product
Method Method Method Method
Revenues, excluding adjustments primarily for pricing on prior period open sales $ 3.25 $ 3.25 $ 3.03 $ 3.03
Site production and delivery, before net noncash and nonrecurring costs $ 0.91 $ 0.87 $ 0.82 $ 0.79
By-product credits (0.09) – (0.08) –
Treatment charges 0.20 0.20 0.17 0.17
Combined unit net cash costs $ 1.02 $ 1.07 $ 0.91 $ 0.96
Copper sales (millions of recoverable pounds) 1,399 1,399 1,126 1,126
a. For comparative purposes, 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.