Freeport-McMoRan 2011 Annual Report Download - page 74

72 | FREEPORT-McMoRan COPPER & GOLD INC.
NOTE 1. Summary of Signicant Accounting Policies
Basis of Presentation. e consolidated nancial statements of
Freeport-McMoRan Copper & Gold Inc. (FCX) include the
accounts of those subsidiaries where FCX directly or indirectly
has more than 50 percent of the voting rights and has the right
to control signicant management decisions. e most signicant
entities that FCX consolidates include its 90.64 percent-owned
subsidiary PT Freeport Indonesia, and its wholly owned
subsidiaries, Freeport-McMoRan Corporation (FMC — formerly
Phelps Dodge Corporation) and Atlantic Copper, S.L. (Atlantic
Copper). FCX’s unincorporated joint ventures with Rio Tinto
plc (Rio Tinto) and Sumitomo Metal Mining Arizona, Inc.
(Sumitomo) are reected using the proportionate consolidation
method (refer to Note 2 for further discussion). All signicant
intercompany transactions have been eliminated. Dollar amounts
in tables are stated in millions, except per share amounts.
Investments in unconsolidated companies owned 20 percent or
more are recorded using the equity method. Investments in
companies owned less than 20 percent, and for which FCX does
not exercise signicant inuence, are carried at cost.
Business Segments. FCX has organized its operations into ve
primary divisions — North America copper mines, South America
mining, Indonesia mining, Africa mining and Molybdenum
operations. Notwithstanding this structure, FCX internally reports
information on a mine-by-mine basis. erefore, FCX concluded
that its operating segments include individual mines. Operating
segments that meet certain thresholds are reportable segments.
Use of Estimates. e preparation of FCX’s nancial statements
in conformity with accounting principles generally accepted in the
United States (U.S.) requires management to make estimates and
assumptions that aect the amounts reported in these nancial
statements and accompanying notes. e more signicant areas
requiring the use of management estimates include mineral reserve
estimation; useful asset lives for depreciation, depletion and
amortization; reclamation and closure costs; environmental
obligations; estimates of recoverable copper in mill and leach
stockpiles; pension, postretirement, postemployment and other
employee benets; deferred taxes and valuation allowances;
reserves for contingencies and litigation; and asset impairment,
including estimates used to derive future cash ows associated
with those assets. Actual results could dier from those estimates.
Foreign Currencies. For foreign subsidiaries whose functional
currency is the U.S. dollar, monetary assets and liabilities
denominated in the local currency are translated at current
exchange rates, and non-monetary assets and liabilities, such as
inventories, property, plant, equipment and development costs, are
translated at historical rates. Gains and losses resulting from
translation of such account balances are included in operating
results, as are gains and losses from foreign currency transactions.
For foreign subsidiaries whose functional currency is the local
currency, assets and liabilities are translated at current exchange
rates, while revenues and expenses are translated at average rates
in eect for the period. e related translation gains and losses
are included in accumulated other comprehensive income (loss)
within equity.
Cash Equivalents. Highly liquid investments purchased with
maturities of three months or less are considered cash equivalents.
Inventories. e largest components of inventories include
nished goods (primarily concentrates and cathodes) at mining
operations, concentrates and work-in-process at Atlantic Copper’s
smelting and rening operations, and materials and supplies
inventories (refer to Note 3 for further discussion). Inventories of
materials and supplies, as well as salable products, are stated at the
lower of weighted-average cost or market. Costs of nished goods
and work-in-process (i.e., not materials and supplies) inventories
include labor and benets, supplies, energy, depreciation,
depletion, amortization, site overhead costs and other necessary
costs associated with the extraction and processing of ore,
including, depending on the process, mining, haulage, milling,
concentrating, smelting, leaching, solution extraction, rening,
roasting and chemical processing. Corporate general and
administrative costs are not included in inventory costs.
Work-in-Process. In-process inventories represent materials that
are currently in the process of being converted to a salable product.
Conversion processes for mining operations vary depending on the
nature of the copper ore and the specic mining operation. For
sulde ores, processing includes milling and concentrating and
results in the production of copper and molybdenum concentrates
or, alternatively, copper cathode by concentrate leaching. For oxide
ores and certain secondary sulde ores, processing includes
leaching of stockpiles, solution extraction and electrowinning
(SX/EW) and results in the production of copper cathodes.
In-process material is measured based on assays of the material
included in these processes and projected recoveries. In-process
inventories are valued based on the costs incurred to various points
in the process, including depreciation relating to associated process
facilities. For Atlantic Copper, in-process inventories represent
copper concentrates at various stages of conversion into anodes
and cathodes. Atlantic Copper’s in-process inventories are valued
at the weighted-average cost of the material fed to the smelting
and rening process plus in-process conversion costs.
Finished Goods. Finished goods include salable products (e.g.,
copper and molybdenum concentrates, copper anodes, copper
cathodes, copper rod, copper wire, molybdenum oxide, high-purity
molybdenum chemicals and other metallurgical products).
Finished goods are valued based on the weighted-average cost of
source material plus applicable conversion costs relating to
associated process facilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS