Freeport-McMoRan 2011 Annual Report Download - page 43

2011 ANNUAL REPORT | 41
fuel pipelines resulting from civil unrest that occurred during
the strike. 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.
In mid-December 2011, the nancial terms of a new two-year
labor agreement for PT Freeport Indonesia were reached. Pursuant
to the terms, PT Freeport Indonesia agreed to increase base wages
by 24 percent in the rst year and 13 percent in the second year
(equivalent to a 40 percent increase over two years on a compound
basis). PT Freeport Indonesia also paid a bonus equivalent to three
months of base wages and agreed to provide other benets,
including enhancements to housing allowances, educational
assistance and retirement savings plans. e parties also agreed
that future wage negotiations would be based on living costs and
the competitiveness of wages within Indonesia. e impact of the
terms agreed to in PT Freeport Indonesia’s new labor agreement,
including the bonuses and other strike-related employee costs,
totaled approximately $66 million for 2011.
Between July 2009 and February 2012, there were 32 shooting
incidents in and around the Grasberg minerals district, including
along the road leading to our mining and milling operations,
which resulted in 15 fatalities and 56 injuries. e investigation of
these matters is continuing. We have taken precautionary
measures, including limiting use of the road to secured convoys.
e Indonesian government has responded with additional
security forces and expressed a commitment to protect the safety
of the community and our operations. Prolonged limitations on
access to the road could adversely aect operations at the mine.
e safety of our workforce is a critical concern, and PT Freeport
Indonesia is working cooperatively with the Government of
Indonesia to address security issues.
Operating Data. Following is summary operating data for our
Indonesia mining operations for the years ended December 31.
2011 2010 2009
Operating Data, Net of Joint Venture Interest
Copper (millions of recoverable pounds)
Production 846 1,222 1,412
Sales 846 1,214 1,400
Average realized price per pound $ 3.85 $ 3.69 $ 2.65
Gold (thousands of recoverable ounces)
Production 1,272 1,786 2,568
Sales 1,270 1,765 2,543
Average realized price per ounce $ 1,583 $ 1,271 $ 994
100% Operating Data
Ore milled (metric tons per day):
a
Grasberg open pit 112,900 149,800 166,300
DOZ underground mine 51,700 79,600 72,000
Big Gossan underground mine 1,500 800 —
Total 166,100 230,200 238,300
Average ore grade:
Copper (percent) 0.79 0.85 0.98
Gold (grams per metric ton) 0.93 0.90 1.30
Recovery rates (percent):
Copper 88.3 88.9 90.6
Gold 81.2 81.7 83.7
Production (recoverable):
Copper (millions of pounds) 882 1,330 1,641
Gold (thousands of ounces) 1,444 1,964 2,984
a. Amounts represent the approximate average daily throughput processed at PT Freeport
Indonesia’s mill facilities from each producing mine.
2011 compared with 2010. Sales volumes from our Indonesia
mining operations declined to 846 million pounds of copper and
1.3 million ounces of gold in 2011, compared with 1.2 billion
pounds of copper and 1.8 million ounces of gold in 2010. Lower
copper and gold sales volumes in 2011 primarily reect the impact
of labor-related disruptions and the temporary suspension of
milling operations in fourth-quarter 2011 because of damage to the
concentrate and fuel pipelines. e estimated impact of the labor
and pipeline disruptions (net to PT Freeport Indonesia), including
the eight-day strike in July 2011, totaled approximately
235 million pounds of copper and approximately 275 thousand
ounces of gold.
At the Grasberg open pit, the sequencing of mining areas with
varying ore grades also causes uctuations in the timing of ore
production resulting in varying quarterly and annual sales of
copper and gold. Consolidated sales volumes from our Indonesia
mining operations are expected to approximate 930 million
pounds of copper and 1.1 million ounces of gold for 2012. Gold
sales in 2012 are projected to be lower than in 2011 because of
mining in a lower grade section of the Grasberg open pit in 2012.
Indonesia’s projected sales volumes for the year 2012 (which
includes 210 million pounds of copper and 400 thousand ounces of
gold in rst-quarter 2012) are under review. e achievement of
MANAGEMENT’S DISCUSSION AND ANALYSIS