Freeport-McMoRan 2011 Annual Report Download - page 48

46 | FREEPORT-McMoRan COPPER & GOLD INC.
2011 2010 2009
Revenues, excluding adjustments $ 16 . 42 $ 15.8 9 $ 12 .78
Site production and delivery,
before net noncash and other costs
shown below 5.46 4.82 5.43
Treatment charges and other 0.88 1.08 1.09
Unit net cash costs 6.34 5.90 6.52
Depreciation, depletion and amortization 0.96 0.83 0.98
Noncash and other costs, net 0.04 0.03 0.04
Total unit costs 7.34 6.76 7.54
Gross profit per pound
a
$ 9.08 $ 9.13 $ 5.24
Molybdenum sales
(millions of recoverable pounds)
b
38 40 27
a. Gross profit reflects sales of Henderson products based on volumes produced at market-
based pricing. On a consolidated basis, the Molybdenum division includes profits on sales
as they are made to third parties and realizations based on actual contract terms. As a
result, the actual gross profit realized will differ from the amounts reported in this table.
b. Reflects molybdenum produced by the Henderson molybdenum mine.
Henderson’s unit net cash costs were $6.34 per pound of
molybdenum in 2011, $5.90 per pound in 2010 and $6.52 per
pound in 2009. Henderson’s unit net cash costs in 2011 primarily
reect lower volumes and higher input costs, including labor and
materials. Henderson’s unit net cash costs in 2010 beneted from
higher production volumes, partly oset by higher mining costs.
Assuming achievement of current sales volume and cost
estimates, we estimate unit net cash costs for Henderson would
approximate $7.00 per pound of molybdenum in 2012.
Atlantic Copper Smelting & Rening
Atlantic Copper, our wholly owned subsidiary located in Spain,
smelts and renes copper concentrates and markets rened copper
and precious metals in slimes. During 2011, Atlantic Copper
purchased approximately 17 percent of its concentrate requirements
from our Indonesia mining operation and approximately 30 percent
from our South America mining operations. rough this form of
downstream integration, we are assured placement of a signicant
portion of our concentrate production.
Smelting and rening charges consist of a base rate and, in
certain contracts, price participation based on copper prices.
Treatment charges for smelting and rening copper concentrates
represent a cost to our Indonesia and our South America mining
operations, and income to Atlantic Copper and PT Smelting,
PT Freeport Indonesia’s 25 percent owned smelter and renery.
us, higher treatment and rening charges benet our smelter
operations and adversely aect our mining operations in Indonesia
and South America (our North America copper mines are not
signicantly aected by changes in treatment and rening charges
because these operations are largely integrated with our Miami
smelter located in Arizona).
In May 2011, Atlantic Copper successfully completed a
scheduled 26-day maintenance turnaround, which had a $30 million
impact on production and delivery costs in 2011. Atlantic Copper’s
major maintenance turnarounds typically occur approximately
every eight years, with short-term maintenance turnarounds in
the interim.
Atlantic Copper had operating losses of $69 million in 2011,
$37 million in 2010 and $56 million in 2009. e decline in
Atlantic Copper’s operating results in 2011, compared with 2010,
primarily reects the impact of the May 2011 scheduled
maintenance turnaround, lower gold credits and currency
exchange rate impacts. Atlantic Copper’s operating results in 2010,
compared with 2009, primarily reected higher sulphuric acid
and gold revenues associated with higher prices.
We defer recognizing prots on sales from our Indonesia and
South America mining operations to Atlantic Copper and on
25 percent of Indonesia mining sales to PT Smelting until nal
sales to third parties occur. Our net deferred prots on our
Indonesia and South America mining operations concentrate
inventories at Atlantic Copper and PT Smelting to be recognized in
future periods’ net income aer taxes and noncontrolling interests
totaled $42 million at December31,2011. Changes in these
deferrals attributable to variability in intercompany volumes
resulted in a net increase to net income attributable to common
stockholders of $139 million ($0.15 per share) in 2011, compared
with net reductions of $67 million ($0.07 per share) in 2010 and net
additions of $21 million ($0.02 per share) in 2009. Quarterly
variations in ore grades, the timing of intercompany shipments
and changes in product prices will result in variability in our net
deferred prots and quarterly earnings. Additionally, as
PT Freeport Indonesia’s operations return to full operating rates,
we expect to defer a signicant amount of PT Freeport Indonesia’s
prot on intercompany sales until sales to third parties occur.
CAPITAL RESOURCES AND LIQUIDITY
Our operating cash ows vary with prices realized from copper,
gold and molybdenum sales, our sales volumes, production costs,
income taxes and other working capital changes and other factors.
Strong operating performance and favorable copper and gold
prices have enabled us to enhance our nancial and liquidity
position, reduce debt and pay cash dividends to shareholders, while
pursuing future growth opportunities. We view the long-term
outlook for our business positively, supported by limitations on
supplies of copper and by the requirements for copper in the
world’s economy, and will continue to adjust our operating strategy
as market conditions change.
MANAGEMENT’S DISCUSSION AND ANALYSIS