Freeport-McMoRan 2011 Annual Report Download - page 27

2011 ANNUAL REPORT | 25
OVER VIEW
In Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative
Disclosures About Market Risk, “we,” “us” and “our” refer to
Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated
subsidiaries. e results of operations reported and summarized
below are not necessarily indicative of future operating results
(refer to “Cautionary Statement” for further discussion). References
to “Notes” are Notes included in our Notes to Consolidated
Financial Statements. roughout Management’s Discussion and
Analysis of Financial Condition and Results of Operations and
Quantitative and Qualitative Disclosures About Market Risk all
references to earnings or losses per share are on a diluted basis,
unless otherwise noted.
We are one of the world’s largest copper, gold and molybdenum
mining companies in terms of reserves and production. Our
portfolio of assets includes the Grasberg minerals district in
Indonesia, signicant mining operations in North and South
America, and the Tenke Fungurume (Tenke) minerals district in
the Democratic Republic of Congo (DRC). e Grasberg minerals
district contains the largest single recoverable copper reserve and
the largest single gold reserve of any mine in the world based on
the latest available reserve data provided by third-party industry
consultants. We also operate Atlantic Copper, our wholly owned
copper smelting and rening unit in Spain.
We have signicant reserves, resources and future development
opportunities within our portfolio of assets. At December31,2011,
our estimated consolidated recoverable proven and probable
reserves totaled 119.7 billion pounds of copper, 33.9 million ounces
of gold and 3.42 billion pounds of molybdenum, which were
determined using long-term average prices of $2.00 per pound for
copper, $750 per ounce for gold and $10 per pound for molybdenum.
We have added signicant reserves in recent years and drilling
activities conducted at our existing mines during 2011 indicated
the potential for signicant reserve additions in future periods.
Refer to “Critical Accounting Estimates — Mineral Reserves” for
further discussion.
During 2011, 34 percent of our consolidated copper production
was from North America, 35 percent from South America, 23 percent
from Indonesia and 8 percent from Africa. More specically,
copper production from the Grasberg, Morenci and Cerro Verde
mines totaled 55 percent of our consolidated copper production in
2011. We also produce gold, primarily at the Grasberg minerals
district in Indonesia, which accounted for 92 percent of our
consolidated gold production for 2011. For 2011, 46 percent of our
consolidated molybdenum production was from the Henderson
molybdenum mine, 42 percent was produced at certain of our
North America copper mines and 12 percent was produced at our
Cerro Verde mine. Refer to “Operations” for further discussion of
our mining operations.
We have increased production at several of our copper mines
and are undertaking major development projects, including the
development of the underground ore bodies at Grasberg, an
expansion at Tenke Fungurume and a concentrator expansion at
Cerro Verde. Studies are also under way to evaluate a major mill
project at El Abra and various mill projects to process signicant
sulde ore in North America. e advancement of these studies
is designed to position us to invest in production growth within our
existing portfolio of assets. Refer to “Operations” for further
discussion of our current operating and development activities.
Our results for the year 2011, compared with 2010, primarily
reected higher realized copper and gold prices, partially oset by
lower copper and gold sales volumes (refer to “Consolidated
Results” for further discussion of our consolidated nancial results
for the years ended December31,2011, 2010 and 2009).
Our 2011 results also reect the impact of labor disruptions at
PT Freeport Indonesia. PT Freeport Indonesia’s milling operations
were temporarily suspended during fourth-quarter 2011 because of
damage to concentrate and fuel pipelines resulting from civil
unrest that occurred during the course of a strike by union workers.
e nancial terms of a new two-year labor agreement for PT Freeport
Indonesia’s workers were reached in mid-December 2011.
Repairs to the damaged pipelines are substantially complete, and
PT Freeport Indonesia has begun ramping up production.
PT Freeport Indonesia is working cooperatively with the
Government of Indonesia to address security issues. Maintaining
security is a requirement of returning to normal operations.
Although a new labor agreement has been reached, we are
experiencing work interruptions in connection with our eorts to
resume normal operations at PT Freeport Indonesia. PT Freeport
Indonesia is complying with the terms of the new labor agreement
with its union. Certain of the returning workers have engaged in
acts of violence and intimidation against workers and supervisory
personnel who did not participate in the strike. On February 23, 2012,
the union indicated that it will engage in a work stoppage and we
temporarily suspended operations to protect our employees and
assets following the incidents of intimidation and threats within
the workforce. We are working with union ocials and government
authorities to resolve the ongoing issues. e work interruptions
and temporary suspension of operations at PT Freeport Indonesia
may impact our ability to achieve projected sales volumes,
unit net cash costs and operating cash ows in 2012. PT Freeport
Indonesia’s projected sales volumes of 930 million pounds of
copper and 1.1 million ounces of gold for the year 2012 (which
MANAGEMENT’S DISCUSSION AND ANALYSIS