Freeport-McMoRan 2013 Annual Report Download - page 124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
122 | FREEPORT-McMoRan
copper produced at the North America copper mines is cast into
copper rod by FCX’s Rod & Refining operations. The North
America copper mines include the Morenci copper mine as a
reportable segment. In addition to copper, certain of FCX’s North
America copper mines also produce molybdenum concentrates.
Morenci. The Morenci open-pit mine, located in southeastern
Arizona, produces copper cathodes and copper concentrates. In
addition to copper, the Morenci mine also produces molybdenum
concentrates. The Morenci mine produced 39 percent of FCX’s
North America copper during 2013.
South America Mining. South America mining includes four
operating copper mines — Cerro Verde in Peru, and El Abra,
Candelaria and Ojos del Salado in Chile. These operations include
open-pit and underground mining, sulfide ore concentrating,
leaching and SX/EW operations. South America mining includes the
Cerro Verde and Candelaria copper mines as reportable segments.
Cerro Verde. The Cerro Verde open-pit copper mine, located
near Arequipa, Peru, produces copper cathodes and copper
concentrates. In addition to copper, the Cerro Verde mine also
produces molybdenum concentrates. The Cerro Verde mine
produced 42 percent of FCX’s South America copper during 2013.
Candelaria. The Candelaria open-pit copper mine, located
near Copiapó, Chile, produces copper concentrates. In addition to
copper, the Candelaria mine also produces gold and silver. The
Candelaria mine produced 28 percent of FCX’s South America
copper during 2013.
Indonesia Mining. Indonesia mining includes PT-FI’s Grasberg
minerals district that produces copper concentrates, which contain
significant quantities of gold and silver.
Africa Mining. Africa mining includes the Tenke minerals
district. The Tenke operation includes surface mining, leaching
and SX/EW operations and produces copper cathodes. In addition
to copper, the Tenke operation produces cobalt hydroxide.
Molybdenum Mines. Molybdenum mines include the wholly
owned Henderson underground mine and Climax open-pit mine
in Colorado. The Henderson and Climax mines produce high-
purity, chemical-grade molybdenum concentrates, which are
typically further processed into value-added molybdenum
chemical products.
Rod & Refining. The Rod & Refining segment consists of copper
conversion facilities located in North America, and includes a
refinery, three rod mills and a specialty copper products facility.
These operations process copper produced at FCX’s North
America copper mines and purchased copper into copper cathode,
rod and custom copper shapes. At times these operations refine
copper and produce copper rod and shapes for customers on a
toll basis. Toll arrangements require the tolling customer to
deliver appropriate copper-bearing material to FCX’s facilities for
processing into a product that is returned to the customer, who
pays FCX for processing its material into the specified products.
NOTE 16. BUSINESS SEGMENTS
Subsequent to the acquisitions of PXP and MMR, FCX has
organized its operations into six primary divisions — North
America copper mines, South America mining, Indonesia mining,
Africa mining, Molybdenum mines and U.S. oil and gas
operations. Notwithstanding this structure, FCX internally reports
information on a mine-by-mine basis for its mining operations.
Therefore, FCX concluded that its operating segments include
individual mines or operations relative to its mining operations.
For oil and gas operations, FCX determines its operating
segments on a country-by-country basis. Operating segments
that meet certain financial thresholds are reportable segments.
Beginning in 2013, the Molybdenum operations division was
revised to report only FCX’s two molybdenum mines in North
America — the Henderson underground mine and the Climax
open-pit mine, both in Colorado — as a division (i.e. Molybdenum
mines). The molybdenum sales company and related conversion
facilities are included with Other Mining & Eliminations in the
following segment tables. FCX revised its segment disclosures for
the years ended December 31, 2012 and 2011, to conform with the
current year presentation.
Intersegment Sales. Intersegment sales between FCX’s mining
operations are based on similar arms-length transactions with
third parties at the time of the sale. Intersegment sales may not be
reflective of the actual prices ultimately realized because of a
variety of factors, including additional processing, timing of sales
to unaffiliated customers and transportation premiums.
FCX defers recognizing profits on sales from its mining
operations to other divisions, including Atlantic Copper and on
25 percent of PT-FI’s sales to PT Smelting until final sales to third
parties occur. Quarterly variations in ore grades, the timing of
intercompany shipments and changes in product prices result in
variability in FCX’s net deferred profits and quarterly earnings.
Allocations. FCX allocates certain operating costs, expenses
and capital expenditures to its operating divisions and individual
segments. However, not all costs and expenses applicable to an
operation are allocated. U.S. federal and state income taxes are
recorded and managed at the corporate level, whereas foreign
income taxes are recorded and managed at the applicable country
level. In addition, most mining exploration and research activities
are managed at the corporate level, and those costs along with
some selling, general and administrative costs are not allocated to
the operating divisions or individual segments. Accordingly, the
following segment information reflects management
determinations that may not be indicative of what the actual
financial performance of each operating division or segment
would be if it was an independent entity.
North America Copper Mines. FCX has seven operating copper
mines in North America — Morenci, Bagdad, Safford, Sierrita and
Miami in Arizona, and Tyrone and Chino in New Mexico. The
North America copper mines include open-pit mining, sulfide ore
concentrating, leaching and SX/EW operations. A majority of the