Freeport-McMoRan 2011 Annual Report Download - page 45

2011 ANNUAL REPORT | 43
Unit net cash costs (net of gold and silver credits) increased
to a net credit of $0.04 per pound of copper in 2010, compared
with a net credit of $0.49 per pound in 2009, reecting higher site
production and delivery costs ($0.48 per pound) primarily
associated with lower copper sales volumes, higher input costs
(including materials, labor and energy), higher maintenance
and support costs, and higher cost sharing under joint venture
arrangements. Partly osetting higher site production and
delivery costs were higher gold and silver credits ($0.06 per pound)
associated with higher gold prices.
Africa Mining
Africa mining consists of the Tenke copper and cobalt mining
concessions in the Katanga province of the DRC. e Tenke mine
includes surface mining, leaching and SX/EW operations. Copper
production from the Tenke mine is sold as copper cathode. In
addition to copper, the Tenke mine produces cobalt hydroxide. All
Africa mining operations are conducted by Tenke Fungurume
Mining S.A.R.L. (TFM).
In October 2010, the Government of the DRC concluded its
review of TFM’s existing mining contracts and conrmed that they
are in good standing. In connection with the review, TFM made
several commitments that have been reected in amendments to its
mining contracts, which were signed by the parties in December
2010 (refer to Note 14 for further discussion). In March 2011, the
amendments were approved by a ministerial council, and a
Presidential Decree, signed by the President and Prime Minister of
the DRC, was issued in April 2011. Aer receiving the required
government approval of the modications to TFM’s bylaws that
reect the agreement with the Government of the DRC, our
eective ownership interest in the project will be reduced to
56.0 percent prospectively, compared to our current ownership
interest of 57.75 percent.
Operating and Development Activities. Our initial investment
in the project approximated $2 billion, and we have received
loan repayments of approximately $700 million through
December31,2011.
e milling facilities at Tenke, which were designed to process
ore at a rate of 8,000 metric tons of ore per day, continue to
perform above capacity, with throughput averaging 11,100 metric
tons of ore per day in 2011. Mining rates have been increased to
enable additional copper production from the initial project
capacity of 250 million pounds of copper per year to ramp up to
approximately 290 million pounds of copper per year.
We are undertaking a second phase of the project, which would
include optimizing the current plant and increasing capacity.
As part of the second phase, we are expanding the mill rate to
14,000 metric tons of ore per day and are constructing related
processing facilities that would target the addition of approximately
150 million pounds of copper per year. e approximate $850 million
project, which includes mill upgrades, additional mining
equipment and a new tank house and sulphuric acid plant expansion,
is targeted for completion in 2013. e second phase of the project
will be funded with cash generated from operations, and where
additional funds are required, we will fund 70 percent and Lundin
Mining Corporation will fund 30 percent.
We continue to engage in drilling activities, exploration analyses
and metallurgical testing to evaluate the potential of the highly
prospective minerals district at Tenke. ese analyses are being
incorporated in future plans to evaluate opportunities for
expansion. Future expansions are subject to a number of factors,
including economic and market conditions and the business and
investment climate in the DRC.
2010 2009
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 3.69 $ 3.69 $ 1,271 $ 2.65 $ 2.65 $ 994
Site production and delivery, before net noncash
and other costs shown below 1.53 1.01 347 1.05 0.62 232
Gold and silver credits (1.92) — — (1.86) — —
Treatment charges 0.22 0.15 50 0.22 0.13 49
Royalty on metals 0.13 0.08 29 0.10 0.06 23
Unit net cash (credits) costs (0.04) 1.24 426 (0.49) 0.81 304
Depreciation and amortization 0.21 0.14 48 0.20 0.11 43
Noncash and other costs, net 0.04 0.02 9 0.03 0.02 6
Total unit costs (credits) 0.21 1.40 483 (0.26) 0.94 353
Revenue adjustments, primarily for pricing on
prior period open sales (0.01) (0.01) 1 0.04 0.04 2
Gross profit per pound/ounce $ 3.47 $ 2.28 $ 789 $ 2.95 $ 1.75 $ 643
Copper sales (millions of recoverable pounds) 1,214 1,214 1,400 1,400
Gold sales (thousands of recoverable ounces) 1,765 2,543
MANAGEMENT’S DISCUSSION AND ANALYSIS