Freeport-McMoRan 2011 Annual Report Download - page 35

2011 ANNUAL REPORT | 33
Atlantic Copper Revenues
e increases in Atlantic Copper’s revenues in 2011 and 2010,
compared with prior years, primarily reected higher copper and
gold revenues associated with higher copper and gold prices.
Production and Delivery Costs
2011 compared with 2010. Consolidated production and delivery
costs totaled $9.9 billion in 2011, compared with $8.3 billion in
2010. Higher production and delivery costs for 2011 primarily
reect increased mining and milling activities in North America,
higher input costs at our mining operations, higher costs of
concentrate purchases at Atlantic Copper associated with higher
copper and gold prices and higher costs of copper cathode
purchases in North America associated with higher copper prices.
Consolidated unit site production and delivery costs for our
copper mining operations averaged $1.72 per pound of copper in
2011, compared with $1.40 per pound of copper in 2010. Higher
site production and delivery costs in 2011 primarily reected
lower copper sales volumes in Indonesia and increased mining
and input costs in North and South America and Africa.
Consolidated unit net cash costs in 2011 also included $116 million
($0.03 per pound) primarily related to bonuses for new labor
agreements and other employee costs in Indonesia and South
America. Refer to “Operations — Unit Net Cash Costs” for further
discussion of unit net cash costs associated with our operating
divisions, and to “Product Revenues and Production Costs” for
reconciliations of per pound costs by operating division to
production and delivery costs applicable to sales reported in our
consolidated nancial statements.
Our copper mining operations require signicant energy,
principally diesel, electricity, coal and natural gas. Energy costs
approximated 21 percent of our consolidated copper production
costs in 2011, and included purchases of approximately 225 million
gallons of diesel fuel; 6,475 gigawatt hours of electricity at our
North America, South America and Africa copper mining
operations (we generate all of our power at our Indonesia mining
operation); 650 thousand metric tons of coal for our coal power
plant in Indonesia; and 1 million MMBTU (million British thermal
units) of natural gas at certain of our North America mines. For
2012, we estimate energy costs will approximate 23 percent of our
consolidated copper production costs.
2010 compared with 2009. Consolidated production and delivery
costs totaled $8.3 billion in 2010, compared with $7.0 billion
in 2009. Higher production and delivery costs for 2010 primarily
reect higher input costs at our mining operations and higher
costs of concentrate purchases at Atlantic Copper associated with
higher copper prices.
Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense
totaled $1.0 billion in 2011, 2010 and 2009. Depreciation will vary
under the UOP method as a result of increases and decreases in
sales volumes and the related UOP rates at our mining operations.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled
$415 million in 2011, $381 million in 2010 and $321 million in
2009. Higher selling, general and administrative expenses in 2011,
compared with 2010, primarily reected higher charitable
contributions. Approximately half of the increase in selling,
general and administrative expenses in 2010, compared with 2009,
reected higher stock-based compensation and other incentive
compensation costs related to improved nancial performance.
Exploration and Research Expenses
Consolidated exploration and research expenses totaled $271 million
in 2011, $143 million in 2010 and $90 million in 2009. We are
conducting exploration activities near our existing mines with a
focus on opportunities to expand reserves that will support
additional future production capacity in the large mineral districts
where we currently operate. Exploration results indicate
opportunities for signicant future potential reserve additions in
North and South America and in the Tenke minerals district. e
drilling data in North America continue to indicate the potential
for expanded sulde production.
For 2012, exploration and research expenditures are being
increased to an estimated $330 million, including approximately
$275 million for exploration. Exploration activities will continue
to focus primarily on the potential for future reserve additions in
our existing minerals districts.
Environmental Obligations and Shutdown Costs
Environmental obligations costs reect net revisions to our
long-term environmental obligations, which will vary from period
to period because of changes to environmental laws and
regulations and/or circumstances aecting our operations and
could result in signicant changes in our estimates (refer to
“Critical Accounting Estimates — Environmental Obligations” for
further discussion). Shutdown costs include care and maintenance
costs and any litigation, remediation or related expenditures
associated with closed facilities or operations.
Environmental obligations and shutdown costs totaled $134 million
in 2011, $19 million in 2010 and $106 million in 2009 (which also
included net restructuring charges of $23 million in 2009). Refer to
Note 13 for further discussion of environmental obligations and
litigation matters associated with closed facilities or operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS