Freeport-McMoRan 2013 Annual Report Download - page 35

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MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 ANNUAL REPORT | 33
CRITICAL ACCOUNTING ESTIMATES
Management’s Discussion and Analysis of Financial Condition
and Results of Operations is based on our consolidated financial
statements, which have been prepared in conformity with
generally accepted accounting principles (GAAP) in the U.S. The
preparation of these statements requires that we make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. We base these estimates on
historical experience and on assumptions that we consider
reasonable under the circumstances; however, reported results
could differ from those based on the current estimates under
different assumptions or conditions. The areas requiring the use
of management’s estimates are also discussed in Note 1 under
the subheading “Use of Estimates.” Management has reviewed
the following discussion of its development and selection of critical
accounting estimates with the Audit Committee of our Board.
Mineral Reserves. Recoverable proven and probable reserves
are the part of a mineral deposit that can be economically and
legally extracted or produced at the time of the reserve
determination. The determination of reserves involves numerous
uncertainties with respect to the ultimate geology of the ore
bodies, including quantities, grades and recovery rates. Estimating
the quantity and grade of mineral reserves requires us to
determine the size, shape and depth of our ore bodies by analyzing
geological data, such as samplings of drill holes, tunnels and
other underground workings. In addition to the geology of our
mines, assumptions are required to determine the economic
feasibility of mining these reserves, including estimates of future
commodity prices and demand, the mining methods we use
and the related costs incurred to develop and mine our reserves.
Our estimates of recoverable proven and probable mineral
reserves are prepared by and are the responsibility of our
employees. A majority of these estimates are reviewed annually
and verified by independent experts in mining, geology and
reserve determination.
At December 31, 2013, our consolidated estimated recoverable
proven and probable reserves were determined using long-term
average prices of $2.00 per pound for copper (consistent with the
long-term average copper price used since December 31, 2010),
$1,000 per ounce for gold and $10 per pound for molybdenum.
of weak demand in the metallurgical sector and increased supply.
During 2013, the weekly average price of molybdenum ranged
from a low of $9.18 per pound to a high of $11.95 per pound,
averaged $10.32 per pound and was $9.70 per pound on
December 31, 2013. The Metals Week Molybdenum Dealer Oxide
weekly average price was $9.83 per pound on February 14, 2014.
Oil and Gas. Market prices for crude oil and natural gas can
fluctuate significantly. During the period from January 2004
through January 2014, the Brent crude oil price ranged from a low
of $28.83 per barrel in 2004 to a high of $146.08 per barrel in
2008, and the NYMEX natural gas price fluctuated from a low of
$2.04 per million British thermal units (MMBtu) in 2012 to a high of
$13.91 per MMBtu in 2005. Crude oil and natural gas prices are
affected by numerous factors beyond our control as described
further in our “Risk Factors” contained in Part I, Item 1A of our
Form 10-K for the year ended December 31, 2013.
Crude Oil and Natural Gas Prices
Through January 31, 2014
This graph presents Brent crude oil prices and NYMEX natural gas
contract prices from January 2004 through January 2014. Crude
oil prices reached a record high in July 2008 as economic growth
in emerging economies and the U.S. created high global
demand for oil and lower inventories. By the end of 2008, financial
turmoil in the U.S. contributed to a global economic slowdown
and a decline in many commodity prices, including crude oil
which reached a low of $36.61 per barrel in December 2008. Crude
oil prices have rebounded since 2008, supported by a gradually
improving global economy and demand outlook. Additionally,
increased North American oil supplies led by U.S. shale
production have negatively impacted U.S. Gulf Coast crude oil
prices relative to Brent pricing. During 2013, the Brent crude oil
price ranged from a low of $97.69 per barrel to a high of $118.90
per barrel, averaged $108.68 per barrel and was $110.80 per
barrel on December 31, 2013. The Brent crude oil price was $109.08
per barrel on February 14, 2014.
2004 20082006 2010 2012 2014
$160
$120
$80
$40
$140
$100
$60
$20
$16
$12
$8
$4
$14
$10
$6
$2
Brent Crude Oil Prices ($/Bbl)
Natural Gas Prices ($/MMBtu)
Brent Crude
NYMEX