Freeport-McMoRan 2008 Annual Report Download - page 49

Management’s Discussion and Analysis
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 47
“intends,” “likely,” “will,” “should,” “to be” and any similar
expressions and/or statements that are not historical facts, in
each case as they relate to us or our management, are intended
to identify those assertions as forward-looking statements.
In making any of those statements, the person making them
believes that the expectations are based on reasonable
assumptions. We caution readers that those statements are
not guarantees of future performance, and our actual results
may differ materially from those anticipated, projected or
assumed in the forward-looking statements. Important factors
that can cause our actual results to differ materially from
those anticipated in the forward-looking statements include
commodity prices, mine sequencing, production rates, industry
risks, regulatory changes, political risks, weather-related risks,
labor relations, environmental risks, litigation results, currency
translation risks and other factors described in more detail
under the heading “Risk Factors” in our Form 10-K for the year
ended December 31, 2008.
Accordingly, no assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what impact they will have on our
results of operations or financial condition. Except for our ongoing
obligations under the federal securities laws, we do not intend
and undertake no obligation to update or revise any forward-
looking statements.
PRODUCT REVENUES AND PRODUCTION COSTS
Unit net cash costs per pound of copper and molybdenum are
measures 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 the
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.
We present gross profit per pound of copper using both a
“by-product” method and a “co-product” method. We use the
by-product method in our presentation of gross profit per
pound of copper because (i) the majority of our revenues are
copper revenues, (ii) we mine ore, which contains copper,
gold, molybdenum and other metals, (iii) it is not possible to
specifically assign all of our costs to revenues from the
copper, gold, molybdenum and other metals we produce, (iv) it
is the method used to compare mining operations in certain
industry publications and (v) it is the method used by our
management and Board of Directors to monitor operations. In
the co-product method presentation below, costs are allocated
to the different products based on their relative revenue values,
which will vary to the extent our metals sales volumes and
realized prices change.
In both the by-product and the co-product method calculations,
we show adjustments to copper revenues for prior period open
sales as separate line items. Because the copper pricing
adjustments do not result from current period sales, we have
reflected these separately from revenues on current period sales.
Noncash and nonrecurring costs consist of items such as LCM
inventory adjustments, stock-based compensation costs and/or
unusual charges. They are removed from site production and
delivery costs in the calculation of unit net cash costs. As
discussed above, gold, molybdenum and other metal revenues at
copper mines are reflected as credits against site production and
delivery costs in the by-product method. Presentations under
both the by-product and co-product methods are shown below
together with reconciliations to amounts reported in our
consolidated financial statements.
In addition, for comparative purposes, we have presented
revenues and net cash costs for the North America copper mines,
South America copper mines and Henderson molybdenum mine
for the year ended December 31, 2007, on a combined basis,
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. As the pre-acquisition
data represents the results of the these operations under Phelps
Dodge management, such data is not necessarily indicative of
what past results would have been under FCX management or of
future operating results. Presentations for these periods are
shown below together with reconciliations to amounts reported
in our consolidated pro forma financial data for the year ended
December 31, 2007 (refer to Note 18) and Phelps Dodge’s 2006
Form 10-K for the year ended December 31, 2006.