Freeport-McMoRan 2013 Annual Report Download - page 33

OUTLOOK
We view the long-term outlook for our business positively,
supported by limitations on supplies of copper and oil and by the
requirements for copper and oil in the world’s economy. Our
financial results vary as a result of fluctuations in market prices
primarily for copper, gold, molybdenum and oil, as well as other
factors. World market prices for these commodities have
fluctuated historically and are affected 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 for
our mining operations, cash production costs per BOE for our oil
and gas operations and consolidated operating cash flow. The
outlook for each of these measures follows.
Sales Volumes. Following are our projected consolidated sales
volumes for 2014 and actual consolidated sales volumes for 2013:
2014 2013
(Projected) (Actual)
Copper (millions of recoverable pounds):
North America copper mines 1,725 1,422
South America mining 1,190 1,325
Indonesia mining 1,070 885
Africa mining 445 454
4,430 4,086
Gold (thousands of recoverable ounces):
Indonesia mining 1,650 1,096
North and South America mining 100 108
1,750 1,204
Molybdenum (millions of recoverable pounds) 95
a
93
Oil Equivalents (MMBOE) 60.7 38.1
b
a. Projected molybdenum sales include 48 million pounds produced at our molybdenum
mines and 47 million pounds produced at our North and South America copper mines.
b. Reflects sales of oil and gas for the seven-month period June 1, 2013, to December 31, 2013.
Projected sales volumes are dependent on a number of factors,
including operational performance and other factors.
In January 2014, the Indonesian government published
regulations providing that holders of contracts of work with existing
processing facilities in Indonesia may continue to export
product through January 12, 2017, but established new
requirements for the continued export of copper concentrates,
including the imposition of a progressive export duty on
copper concentrates in the amount of 25 percent in 2014, rising to
60 percent by mid-2016. The January 2014 regulations conflict
with PT Freeport Indonesia’s (PT-FI) contractual rights under the
Contract of Work (COW). We are working with the Indonesian
government to clarify the situation and to defend PT-FI’s rights
under the COW. Refer to “Operations — Indonesia Mining” for
further discussion.
Our 2014 copper and gold sales estimates, mining unit net cash
costs and operating cash flow projections assume no changes
to PT-FI’s planned 2014 concentrate shipments. As of February 21,
2014, PT-FI has not obtained administrative approvals for 2014
exports. PT-FI has implemented near-term changes to its operations
to coordinate its concentrate production with PT Smelting’s
(PT-FI’s 25 percent owned smelter in Indonesia) operating plans.
These changes will result in the deferral of an estimated 40 million
pounds of copper and 80 thousand ounces of gold per month
pending resolution of these matters. Since mid-January 2014,
PT-FI’s milling rate has averaged approximately 112,000 metric
tons of ore per day, which is approximately half of normal rates.
Mining Unit Net Cash Costs. Assuming average prices of $1,200
per ounce of gold and $9.50 per pound of molybdenum, and
achievement of current sales volume and cost estimates,
consolidated unit net cash costs (net of by-product credits) for our
copper mining operations are expected to average $1.45 per
pound in 2014. Quarterly unit net cash costs vary with fluctuations
in sales volumes and average realized prices (primarily gold and
molybdenum prices). Unit net cash costs are expected to decline
in 2014, compared to the 2013 average, as we gain access to
higher grade ore in Indonesia. The impact of price changes in 2014
on consolidated unit net cash costs would approximate $0.02
per pound for each $50 per ounce change in the average price of
gold and $0.02 per pound for each $2 per pound change in
the average price of molybdenum. Refer to “Consolidated
Results — Production and Delivery Costs” for further discussion
of consolidated production and delivery costs for our
mining operations.
Oil and Gas Cash Production Costs per BOE. Based on current
sales volume and cost estimates, cash production costs are
expected to approximate $20 per BOE for 2014, which is higher
than 2013 costs per BOE, primarily reflecting the impact of lower
estimated volumes from planned downtime associated with
platform maintenance and subsea tie-back upgrades on the Marlin
facility in the GOM during third-quarter 2014. Refer to
“Operations — Oil and Gas Operations” for further discussion of
oil and gas production and delivery costs.
Consolidated Operating Cash Flow. Our consolidated operating
cash flows vary with prices realized from copper, gold,
molybdenum and oil sales, our sales volumes, production costs,
income taxes and other working capital changes and other
factors. Based on current sales volume and cost estimates and
assuming average prices of $3.25 per pound of copper, $1,200 per
ounce of gold, $9.50 per pound of molybdenum and $105 per
barrel of Brent crude oil in 2014, consolidated operating cash
flows are estimated to approximate $9 billion (including $0.8 billion
of net working capital sources and changes in other tax
payments) in 2014. Projected consolidated operating cash flows
for the year 2014 also reflect estimated taxes of $2.1 billion (refer
to “Consolidated Results — Provision for Income Taxes” for
discussion of our projected annual consolidated effective tax rate
for 2014). The impact of price changes in 2014 on consolidated
operating cash flows would approximate $370 million for each
$0.10 per pound change in the average price of copper, $85 million
MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 ANNUAL REPORT | 31