Freeport-McMoRan 2011 Annual Report Download - page 52

50 | FREEPORT-McMoRan COPPER & GOLD INC.
long-lived assets. At December 31, 2011, we had $921 million
recorded in our consolidated balance sheets for AROs. Spending
on AROs totaled $49 million in 2011, $38 million in 2010 and
$28 million in 2009. For 2012, we expect to incur approximately
$31 million for aggregate ARO payments. Refer to Note 13 for
further discussion of reclamation and closure costs.
Litigation and Other Contingencies
Refer to Note 13 for further discussion of contingencies associated
with legal proceedings and other matters.
DISCLOSURES ABOUT MARKET RISKS
Commodity Price Risk
Our consolidated revenues include the sale of copper concentrates,
copper cathodes, copper rod, gold, molybdenum and other metals
by our North and South America mines, the sale of copper
concentrates (which also contain signicant quantities of gold and
silver) by our Indonesia mining operations, the sale of copper
cathodes and cobalt hydroxide by our Africa mining operations,
the sale of molybdenum in various forms by our Molybdenum
operations, and the sale of copper cathodes, copper anodes and
gold in anodes and slimes by Atlantic Copper. Our nancial results
can vary signicantly as a result of uctuations in the market
prices of copper, gold, molybdenum, silver and cobalt. World
market prices for these commodities have uctuated historically
and are aected by numerous factors beyond our control. Because
we cannot control the price of our products, the key measures that
management focuses on in operating our business are sales
volumes, unit net cash costs and operating cash ow. Refer to
“Outlook” for further discussion of projected sales volumes, unit
net cash costs and operating cash ows for 2012.
For 2011, 51 percent of our mined copper was sold in
concentrate, 26 percent as cathodes and 23 percent as rod
(principally from our North America copper mines). Substantially
all of our copper concentrate and cathode sales contracts provide
nal copper pricing in a specied future month (generally one to
four months from the shipment date) based primarily on quoted
LME monthly average spot copper prices. We receive market prices
based on prices in the specied future period, which results in
price uctuations recorded through revenues until the date of
settlement. We record revenues and invoice customers at the time
of shipment based on then-current LME prices, which results in an
embedded derivative on our provisionally priced concentrate and
cathode sales that is adjusted to fair value through earnings each
period, using the period-end forward prices, until the date of nal
pricing. To the extent nal prices are higher or lower than what
was recorded on a provisional basis, an increase or decrease to
revenues is recorded each reporting period until the date of nal
pricing. Accordingly, in times of rising copper prices, our revenues
benet from adjustments to the nal pricing of provisionally priced
sales pursuant to contracts entered into in prior periods; in times
of falling copper prices, the opposite occurs.
At December31,2010, we had provisionally priced copper sales
at our copper mining operations, primarily South America and
Indonesia, totaling 417 million pounds of copper (net of
intercompany sales and noncontrolling interests) recorded at an
average of $4.36 per pound. Adjustments to the December31,2010,
provisionally priced copper sales unfavorably impacted
consolidated revenues by $12 million ($5 million to net income
attributable to common stockholders or $0.01 per share) in 2011,
compared with adjustments to the December31,2009,
provisionally priced copper sales that unfavorably impacted
consolidated revenues by $24 million ($10 million to net income
attributable to common stockholders or $0.01 per share) in 2010,
and adjustments to the December31,2008, provisionally priced
copper sales that favorably impacted consolidated revenues by
$132 million ($61 million to net income attributable to common
stockholders or $0.07 per share) in 2009.
At December31,2011, we had provisionally priced copper sales
at our copper mining operations, primarily South America and
Indonesia, totaling 252 million pounds of copper (net of
intercompany sales and noncontrolling interests) recorded at an
average price of $3.44 per pound, subject to nal pricing over
the next several months. We estimate that each $0.05 change in
the price realized from the December31,2011, provisional price
recorded would have a net impact on our 2012 consolidated
revenues of approximately $18 million ($9 million to net income
attributable to common stockholders). e LME spot copper
price closed at $3.81 per pound on February15,2012.
On limited past occasions, in response to market conditions,
we have entered into copper and gold price protection contracts for
a portion of our expected future mine production to mitigate
the risk of adverse price uctuations. We do not currently intend to
enter into similar hedging programs in the future.
Foreign Currency Exchange Risk
e functional currency for most of our operations is the U.S.
dollar. All of our revenues and a signicant portion of our costs are
denominated in U.S. dollars; however, some costs and certain
asset and liability accounts are denominated in local currencies,
including the Indonesian rupiah, Australian dollar, Chilean peso,
Peruvian nuevo sol, euro and South African rand. Generally,
our results are positively aected when the U.S. dollar strengthens
in relation to those foreign currencies and adversely aected when
the U.S. dollar weakens in relation to those foreign currencies.
MANAGEMENT’S DISCUSSION AND ANALYSIS