Freeport-McMoRan 2011 Annual Report Download - page 42

40 | FREEPORT-McMoRan COPPER & GOLD INC.
long-term contracts, of which approximately one-half is sold to
aliated smelters, Atlantic Copper and PT Smelting (PT Freeport
Indonesia’s 25-percent owned copper smelter and renery in
Indonesia — refer to Note 2 for further discussion), and the
remainder to other customers.
Refer to Note 2 for further discussion of our joint ventures with
Rio Tinto plc and to Note 14 for further discussion of PT Freeport
Indonesia’s Contract of Work with the Government of Indonesia.
Refer to “Risk Factors” contained in Part I, Item 1A of our annual
report on Form 10-K for the year ended December 31, 2011,
for discussion of risks associated with operations in Indonesia.
Development Activities. We have several projects in progress
in the Grasberg minerals district, primarily related to the
development of the large-scale, high-grade underground ore bodies
located beneath and nearby the Grasberg open pit. In aggregate,
these underground ore bodies are expected to ramp up to
approximately 240,000 metric tons of ore per day following the
currently anticipated transition from the Grasberg open pit in
2016. Over the next ve years, aggregate capital spending on these
projects is expected to average $700 million per year ($550 million
per year net to PT Freeport Indonesia). Considering the long-term
nature and large size of these projects, actual costs could dier
materially from these estimates.
e following provides additional information on these projects,
including the continued development of the Common
Infrastructure project, the Grasberg Block Cave and Big Gossan
underground mines and development of the Deep Mill Level Zone
(DMLZ) ore body that lies below the Deep Ore Zone (DOZ)
underground mine.
Common Infrastructure and Underground Mines. In 2004,
PT Freeport Indonesia commenced its Common Infrastructure
project to provide access to its large undeveloped underground ore
bodies located in the Grasberg minerals district through a
tunnel system located approximately 400 meters deeper than its
existing underground tunnel system. In addition to providing
access to our underground ore bodies, the tunnel system will enable
PT Freeport Indonesia to conduct future exploration in prospective
areas associated with currently identied ore bodies. e tunnel
system was completed to the Big Gossan terminal and the Big Gossan
mine has been brought into production. We have also advanced
development of both the DMLZ and Grasberg spurs and have
completed the tunneling required to reach these underground
ore bodies.
e Grasberg Block Cave underground mine accounts for over
one-third of our reserves in Indonesia. Production at the
Grasberg Block Cave mine is currently scheduled to commence at
the end of mining the Grasberg open pit, which is currently
expected to continue until mid-2016. e timing of the transition
to underground Grasberg Block Cave mine development will
continue to be assessed. Targeted production rates once the
Grasberg Block Cave mining operation reaches full capacity are
expected to approximate 160,000 metric tons of ore per day.
Aggregate mine development capital for the Grasberg Block
Cave mine and associated Common Infrastructure is expected to
approximate $4.2 billion (incurred from 2008 to 2021), with
PT Freeport Indonesia’s share totaling approximately $3.8 billion.
Aggregate project costs totaling $569 million have been incurred
through December31,2011 ($309 million during 2011).
Big Gossan. e Big Gossan underground mine is a high-grade
deposit located near PT Freeport Indonesia’s existing milling
complex. e Big Gossan mine is being developed as an open-stope
mine with backll consisting of mill tailings and cement, an
established mining methodology. Production, which began in
fourth-quarter 2010, is designed to ramp up to 7,000 metric tons of
ore per day by mid-2013 (equal to average annual aggregate
incremental production of 125 million pounds of copper and
65,000 ounces of gold, with PT Freeport Indonesia receiving
60 percent of these amounts). e aggregate capital investment for
this project is currently estimated at approximately $550 million,
with PT Freeport Indonesia’s share totaling approximately
$518 million. Aggregate project costs of $494 million have been
incurred through December31,2011 ($50 million during 2011).
DMLZ. e DMLZ ore body lies below the DOZ mine at the
2,590-meter elevation and represents the downward continuation
of mineralization in the Ertsberg East Skarn system and
neighboring Ertsberg porphyry. We plan to mine the ore body
using a block-cave method with production beginning in 2015,
near completion of mining at the DOZ mine. Drilling eorts
continue to determine the extent of this ore body. We continue to
develop the Common Infrastructure project and tunnels from mill
level. In 2009, we completed a portion of the spur to the DMLZ
mine and reached the edge of the DMLZ terminal and
development continued on terminal infrastructure and mine
access in 2011. Aggregate mine development capital costs for the
DMLZ are expected to approximate $2.2 billion (incurred
from 2009 to 2020), with PT Freeport Indonesia’s share totaling
approximately $1.3 billion. Aggregate project costs totaling
$269 million have been incurred through December31,2011
($166 million during 2011). Targeted production rates once the
DMLZ mining operation reaches full capacity are expected to
approximate 80,000 metric tons of ore per day.
Other Matters. During 2011, PT Freeport Indonesia was
adversely aected by labor disruptions, including the eight-day
work stoppage in July 2011 and the approximate three-month
strike that concluded in December 2011. Additionally, PT Freeport
Indonesia’s milling operations were temporarily suspended
during fourth-quarter 2011 because of damage to concentrate and
MANAGEMENT’S DISCUSSION AND ANALYSIS