Freeport-McMoRan 2013 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS
44 | FREEPORT-McMoRan
respective operations. We use this measure for the same purpose
and for monitoring operating performance by our mining
operations. This information differs from measures of performance
determined in accordance with U.S. GAAP and should not be
considered in isolation or as a substitute for measures of
performance determined in accordance with U.S. GAAP. This
measure is presented by other metals mining companies,
although our measure may not be comparable to similarly titled
measures reported by other companies.
Gross Profit per Pound of Copper and Molybdenum. The following
tables summarize unit net cash costs and gross profit per pound at
our North America copper mines for the years ended December 31.
Refer to “Product Revenues and Production Costs” for an
explanation of the “by-product” and “co-product” methods and a
reconciliation of unit net cash costs per pound to production and
delivery costs applicable to sales reported in our consolidated
financial statements.
2013 compared with 2012. Copper sales volumes from our North
America copper mines increased to 1.42 billion pounds in 2013,
compared with 1.35 billion pounds in 2012, primarily because of
higher mining and milling rates, higher copper ore grades and
higher recovery rates.
North America copper production is expected to continue to
improve in 2014 following the completion of the Morenci mill
expansion. Copper sales volumes from our North America copper
mines are expected to approximate 1.73 billion pounds in 2014.
Refer to “Outlook” for projected molybdenum sales volumes.
2012 compared with 2011. Copper sales volumes from our North
America copper mines increased to 1.35 billion pounds in 2012,
compared with 1.25 billion pounds in 2011, primarily reflecting
increased production at the Chino mine.
Unit Net Cash Costs. Unit net cash costs per pound of copper is a
measure intended to provide investors with information about
the cash-generating capacity of our mining operations expressed
on a basis relating to the primary metal product for our
2013 2012
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Molybdenum
a
Method Copper Molybdenum
a
Revenues, excluding adjustments $ 3.36 $ 3.36 $ 10.79 $ 3.64 $ 3.64 $ 13.00
Site production and delivery, before net noncash
and other costs shown below 2.00 1.94 3.79 1.91 1.75 6.32
By-product credits (0.24) — — (0.36) — —
Treatment charges 0.11 0.11 — 0.12 0.11 —
Unit net cash costs 1.87 2.05 3.79 1.67 1.86 6.32
Depreciation, depletion and amortization 0.28 0.27 0.22 0.26 0.24 0.48
Noncash and other costs, net 20.14
b
0.14 0.04 0.10 0.10 0.09
Total unit costs 2.29 2.46 4.05 2.03 2.20 6.89
Revenue adjustments, primarily for pricing on
prior period open sales — — — 0.01 0.01 —
Gross profit per pound $ 1.07 $ 0.90 $ 6.74 $ 1.62 $ 1.45 $ 6.11
Copper sales (millions of recoverable pounds) 1,416 1,416 1,347 1,347
Molybdenum sales (millions of recoverable pounds)
a
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a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b. Includes $76 million ($0.05 per pound) associated with updated mine plans at Morenci that resulted in a loss in recoverable copper in leach stockpiles.
Our North America copper mines have varying cost structures
because of differences in ore grades and characteristics,
processing costs, by-product credits and other factors. During
2013, average unit net cash costs (net of by-product credits) for the
North America copper mines ranged from $1.55 per pound to
$2.28 per pound at the individual mines and averaged $1.87 per
pound. Higher average unit net cash costs (net of by-product
credits) in 2013, compared with $1.67 per pound in 2012, primarily
reflected lower molybdenum credits and increased mining and
milling activities, partly offset by higher copper sales volumes.
Because certain assets are depreciated on a straight-line basis,
North America’s average unit depreciation rate may vary with
asset additions and the level of copper production and sales.
Assuming achievement of current sales volume and cost
estimates and an average price of $9.50 per pound of molybdenum
for 2014, average unit net cash costs (net of by-product credits)
for our North America copper mines are expected to approximate
$1.76 per pound of copper in 2014. North America’s average unit
net cash costs for 2014 would change by approximately $0.04 per
pound for each $2 per pound change in the average price of
molybdenum during 2014.