Freeport-McMoRan 2008 Annual Report Download - page 40

Management’s Discussion and Analysis
Henderson, we have also suspended construction activities
associated with the restart of the Climax molybdenum mine (refer
to “Development Projects” for further discussion).
Operating Data. Following is summary operating data for the
Molybdenum operations 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
Molybdenum (millions of recoverable pounds)
Production 40 39 37
Sales, excluding purchases
b
71 69 69
Average realized price per pound $ 30.55 $ 25.87 $ 21.87
Henderson molybdenum mine
Ore milled (metric tons per day) 24,100 24,000 22,200
Average molybdenum ore grade
(percent) 0.23 0.23 0.23
Molybdenum production (millions of
recoverable pounds) 40 39 37
a. The Molybdenum 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. Includes sales of molybdenum produced as a by-product at our North and South
America copper mines.
Molybdenum sales volumes totaled 71 million pounds in 2008 and
69 million pounds for both 2007 and 2006. For 2009, molybdenum
sales volumes are expected to approximate 60 million pounds.
The decrease in expected molybdenum sales volumes for 2009
reflects the curtailed production rate at our Henderson
molybdenum mine and adjustments to by-product molybdenum
production plans at our North and South America copper mines.
We are continuing to closely monitor market conditions and
may make further reductions to our molybdenum production and
sales plans. For 2009, approximately 90 percent of molybdenum
sales are expected to be priced at prevailing market prices.
Unit Net Cash Costs. Unit net cash costs per pound of
molybdenum is a measure intended to provide investors with
information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal
product for our respective operations. We use this measure for
the same purpose and for monitoring operating performance by
our mining operations. This information differs from measures
of performance determined in accordance with U.S. GAAP and
should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S.
GAAP. This measure is presented by other mining companies,
although our measure may not be comparable to similarly titled
measures reported by other companies.
Gross Profit per Pound of Molybdenum
The following tables summarize the unit net cash costs and gross
profit at our Henderson molybdenum mine (which was acquired
on March 19, 2007) for the year ended December 31, 2008, and for
the period March 20, 2007, through December 31, 2007. Refer to
“Product Revenues and Production Costs” for a reconciliation of
unit net cash costs per pound to production and delivery costs
applicable to sales reported in our consolidated financial statements.
2008 2007
a
Revenues $ 29.27 $ 27.12
Site production and delivery, before net noncash
and nonrecurring costs shown below 5.36 4.37
Unit net cash costs 5.36 4.37
Depreciation, depletion and amortization 4.25 2.55
Noncash and nonrecurring costs, net 0.18
b
0.05
Total unit costs 9.79 6.97
Gross profit
c
$ 19.48 $ 20.15
Molybdenum sales (millions of recoverable pounds)
d
40 31
a. Reflects the period from March 20, 2007, through December 31, 2007.
b. Includes charges of $0.03 per pound associated with LCM inventory adjustments.
c. Gross profit reflects sales of Henderson products based on volumes produced at
market-based pricing. On a consolidated basis, the Molybdenum segment includes
profits on sales as they are made to third parties and realizations based on actual
contract terms. As a result, the actual gross profit realized will differ from the
amounts reported in this table.
d. Reflects molybdenum produced by the Henderson molybdenum mine.
Henderson’s unit net cash costs were $5.36 per pound of
molybdenum in 2008, compared with $4.37 per pound of
molybdenum for the period March 20, 2007, through December 31,
2008. Higher costs in 2008 primarily reflected higher input costs,
including outside services, supplies and energy.
The estimated fair values of acquired property, plant and
equipment were based on preliminary estimates for the 2007
periods, with adjustments made until such values were
finalized in first-quarter 2008; accordingly, depreciation,
depletion and amortization reflect changes in purchase
accounting impacts associated with adjustments to the
carrying values of these assets.
Assuming achievement of current 2009 sales estimates, we
estimate that the 2009 average unit net cash costs for Henderson
would approximate $5.50 per pound of molybdenum.
Combined Unit Net Cash Costs per Pound of Molybdenum
For comparative purposes, the following tables summarize
unit net cash costs at the Henderson molybdenum mine for the
year ended December 31, 2007, which reflects our historical
data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007, and for the
year ended December 31, 2006, which reflects Phelps Dodge
pre-acquisition data. Refer to “Product Revenues and Production
38 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report