Freeport-McMoRan 2011 Annual Report Download - page 28

26 | FREEPORT-McMoRan COPPER & GOLD INC.
includes 210 million pounds of copper and 400 thousand ounces of
gold in rst-quarter 2012) are under review. Refer to “Consolidated
Results” and “Operations — Indonesia Mining” for further
discussion of the impacts from the labor disruptions.
At December31,2011, we had $4.8 billion in consolidated cash
and $3.5 billion in long-term debt. During 2011, we repaid $1.2 billion
in debt, including the April 2011 redemption of $1.1 billion of
outstanding 8.25% Senior Notes. In February 2012, we sold $3.0 billion
in senior notes in three tranches and announced our intent
to redeem the remaining $3.0 billion of our 8.375% Senior Notes.
We expect to record a loss on early extinguishment of debt of
$168 million ($147 million to net income attributable to common
stockholders) in rst-quarter 2012 in connection with the
redemption of our 8.375% Senior Notes. Refer to “Capital Resources
and Liquidity — Financing Activities” and to Notes 9 and 20 for
further discussion of these transactions.
During 2011, we paid common stock dividends totaling
$1.4 billion, which included $474 million in supplemental dividends.
In February 2012, our Board of Directors authorized an
increase in the cash dividend on our common stock to an annual
rate of $1.25 per share ($0.3125 per share quarterly). Refer to
“Capital Resources and Liquidity — Financing Activities” for
further discussion.
At current copper prices we expect to produce substantial
operating cash ows in 2012, and plan to focus on using our cash to
invest in our development projects and return cash to shareholders
through common stock dividends and/or share repurchases.
OUTLOOK
We view the long-term outlook for our business positively, supported
by limitations on supplies of copper and by the requirements
for copper in the world’s economy. We will continue to adjust our
operating strategy as market conditions change. Our nancial
results can vary as a result of uctuations in market prices for
copper, gold and molybdenum. World market prices for these
commodities have uctuated historically and are aected by
numerous factors beyond our control. Because we cannot control
the price of our products, the key measures that management
focuses on in operating our business are sales volumes, unit net
cash costs and operating cash ow. Discussion of the outlook
for each of these measures follows.
Sales Volumes. Following are our projected consolidated sales
volumes for 2012 and actual consolidated sales volumes for 2011:
2012 2011
(Projected)
(Actual)
Copper (millions of recoverable pounds):
North America copper mines 1,320 1,247
South America mining 1,275 1,322
Indonesia mining 930 846
Africa mining 290 283
3,815 3,698
Gold (thousands of recoverable ounces):
Indonesia mining 1,135 1,270
South America mining 100 101
North America copper mines N/A
a
7
1,235 1,378
Molybdenum (millions of recoverable pounds)
b
80 79
a. Gold sales volumes are not projected for our North America copper mines.
b. Includes sales of molybdenum produced at our North and South America copper mines.
Our projected 2012 copper sales volumes are expected to be higher,
compared with 2011, primarily because of higher production
from North America and Indonesia, partly oset by slightly lower
production in South America. Gold sales in 2012 are projected to
be lower than 2011 sales because of mine sequencing in
Indonesia. Molybdenum sales in 2012 are expected to be similar
to 2011, with higher production from primary molybdenum
mines, oset by lower production from our North and South
America copper mines. e achievement of projected 2012 sales
volumes depends on a number of factors, including the timing of
restoring normal operations at Grasberg following the extended
disruption in 2011 and because of recent work interruptions and the
temporary suspension of operations, achievement of targeted
mining rates, the successful operation of production facilities, the
impact of weather conditions and other factors.
Unit Net Cash Costs. Assuming average prices of $1,600 per
ounce of gold and $13 per pound of molybdenum for 2012, and
achievement of current projected 2012 sales volume and cost
estimates, we estimate our consolidated unit net cash costs (net of
by-product credits) for our copper mining operations would
average approximately $1.38 per pound in 2012. Consolidated unit
net cash costs in 2012 are expected to be higher than consolidated
unit net cash costs of $1.01 per pound of copper in 2011 because of
higher labor, energy and other inputs, and lower by-product
credits, partly oset by higher copper volumes. Quarterly unit net
cash costs vary with uctuations in sales volumes and average
realized prices for gold and molybdenum. e impact of price
changes in 2012 on consolidated unit net cash costs would
approximate $0.015 per pound for each $50 per ounce change in
the average price of gold and $0.02 for each $2 per pound change in
the average price of molybdenum. Refer to “Consolidated Results
— Production and Delivery Costs” for further discussion of
consolidated production and delivery costs.
MANAGEMENT’S DISCUSSION AND ANALYSIS