Freeport-McMoRan 2011 Annual Report Download - page 44

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42 | FREEPORT-McMoRan COPPER & GOLD INC.
projected 2012 sales volumes depends on a number of factors,
including the timing of restoring full operations at Grasberg
following the extended disruption in 2011 and because of recent
work interruptions and the temporary suspension of operations.
2010 compared with 2009. Sales volumes from our Indonesia
mining operations decreased to 1.2 billion pounds of copper and
1.8 million ounces of gold in 2010, compared with 1.4 billion
pounds of copper and 2.5 million ounces of gold in 2009. Lower
copper and gold sales volumes in 2010 primarily reected mining
in a lower grade section of the Grasberg open pit during the rst
half of 2010.
Unit Net Cash Costs. Unit net cash costs per pound of copper
is a measure intended to provide investors with information about
the cash-generating capacity of our mining operations expressed
on a basis relating to the primary metal product for our respective
operations. We use this measure for the same purpose and for
monitoring operating performance by our mining operations. is
information diers from measures of performance determined
in accordance with U.S. GAAP and should not be considered in
isolation or as a substitute for measures of performance determined
in accordance with U.S. GAAP. is measure is presented by other
mining companies, although our measure may not be comparable
to similarly titled measures reported by other companies.
Gross Profit per Pound of Copper/per Ounce of Gold. e
following tables summarize the unit net cash costs (credits) and
gross prot per pound of copper and per ounce of gold at our
Indonesia mining operations for the years ended December 31.
Refer to “Production Revenues and Production Costs” for an
explanation of “by-product” and “co-product” methods and a
reconciliation of unit net cash costs (credits) per pound to
production and delivery costs applicable to sales reported in our
consolidated nancial statements.
2011 2010
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 3.85 $ 3.85 $ 1,583 $ 3.69 $ 3.69 $ 1,271
Site production and delivery, before net noncash
and other costs shown below 2.21
a
1.34 551 1.53 1.01 347
Gold and silver credits (2.47) — — (1.92) — —
Treatment charges 0.19 0.11 46 0.22 0.15 50
Royalty on metals 0.16 0.10 41 0.13 0.08 29
Unit net cash costs (credits) 0.09 1.55 638 (0.04) 1.24 426
Depreciation and amortization 0.25 0.16 63 0.21 0.14 48
Noncash and other costs, net 0.04 0.02 10 0.04 0.02 9
Total unit costs 0.38 1.73 711 0.21 1.40 483
Revenue adjustments, primarily for pricing on
prior period open sales (0.01) (0.01) (13) (0.01) (0.01) 1
Gross profit per pound/ounce $ 3.46 $ 2.11 $ 859 $ 3.47 $ 2.28 $ 789
Copper sales (millions of recoverable pounds) 846 846 1,214 1,214
Gold sales (thousands of recoverable ounces) 1,270 1,765
a. Includes impacts of $66 million ($0.08 per pound) associated with bonuses and other strike-related costs.
Unit net cash costs (net of gold and silver credits) for our Indonesia
mining operations averaged $0.09 per pound of copper in 2011,
compared with a net credit of $0.04 per pound in 2010. Higher unit
net cash costs primarily reected higher site production and
delivery costs ($0.68 per pound) primarily from lower copper sales
volumes and the impact of bonuses and other strike-related costs,
partially oset by higher gold and silver credits ($0.55 per pound).
Treatment charges vary with the volume of metals sold and
the price of copper, and royalties vary with the volume of metals
sold and the prices of copper and gold.
Assuming achievement of current sales volume and cost
estimates, and an average gold price of $1,600 per ounce for 2012,
we estimate that average unit net cash costs for Indonesia (net of
gold and silver credits) would approximate $0.98 per pound of
copper for the year 2012. Indonesia’s unit net cash costs for 2012
would change by $0.06 per pound for each $50 per ounce change in
the average price of gold during 2012. Higher projected unit net
cash costs in 2012, compared with 2011, primarily reect higher
input costs, including labor and energy, and lower by-product
credits, partly oset by higher projected copper volumes. Quarterly
unit net cash costs are expected to vary signicantly with
variations in quarterly metal sales volumes.
MANAGEMENT’S DISCUSSION AND ANALYSIS