Freeport-McMoRan 2013 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS
46 | FREEPORT-McMoRan
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. The following tables summarize
unit net cash costs and gross profit per pound at our South
America mining operations for the years ended December 31. Unit
net cash costs per pound of copper are reflected under the
by-product and co-product methods as the South America mining
operations also had small amounts of molybdenum, gold and
silver sales. 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. Consolidated copper sales volumes
from South America totaled 1.33 billion pounds in 2013, compared
with 1.25 billion in 2012, primarily reflecting higher ore grades at
Candelaria, partly offset by lower ore grades at Cerro Verde.
For the year 2014, consolidated sales volumes from South
America mines are expected to approximate 1.2 billion pounds of
copper, which are lower than 2013 volumes, primarily reflecting
lower ore grades at Candelaria and Cerro Verde. Refer to
“Outlook” for projected gold and molybdenum sales volumes.
2012 compared with 2011. Copper sales volumes from our
South America mining operations totaled 1.25 billion pounds in
2012, compared with 1.32 billion pounds in 2011, primarily
reflecting lower ore grades at Candelaria and Cerro Verde,
partially offset by higher mining rates and ore grades at El Abra.
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 respective
operations. We use this measure for the same purpose and for
2013 2012
By-Product Co-Product By-Product Co-Product
Method Method Method Method
Revenues, excluding adjustments $ 3.30 $ 3.30 $ 3.58 $ 3.58
Site production and delivery, before net noncash
and other costs shown below 1.53
a
1.42 1.60
a
1.49
By-product credits (0.27) — (0.26) —
Treatment charges 0.17 0.17 0.16 0.16
Unit net cash costs 1.43 1.59 1.50 1.65
Depreciation, depletion and amortization 0.26 0.24 0.23 0.22
Noncash and other costs, net 0.04 0.03 0.09 0.06
Total unit costs 1.73 1.86 1.82 1.93
Revenue adjustments, primarily for pricing on
prior period open sales (0.03) (0.03) 0.09 0.09
Gross profit per pound $ 1.54 $ 1.41 $ 1.85 $ 1.74
Copper sales (millions of recoverable pounds) 1,325 1,325 1,245 1,245
a. Includes labor agreement costs totaling $36 million ($0.03 per pound) at Cerro Verde in 2013 and $16 million ($0.01 per pound) at Candelaria in 2012.
Our South America mines have varying cost structures because
of differences in ore grades and characteristics, processing costs,
by-products and other factors. During 2013, unit net cash costs
(net of by-product credits) for the South America mines ranged
from $1.24 per pound to $2.02 per pound at the individual mines
and averaged $1.43 per pound. Average unit net cash costs (net of
by-product credits) for our South America mining operations
decreased to $1.43 per pound of copper in 2013, compared with
$1.50 per pound in 2012, primarily reflecting higher volumes.
Because certain assets are depreciated on a straight-line basis,
South America’s unit depreciation rate may vary with asset
additions and the level of copper production and sales.
Revenue adjustments primarily result from changes in prices
on provisionally priced copper sales recognized in prior periods.
Refer to “Consolidated Results — Revenues” for further
discussion of adjustments to prior period provisionally priced
copper sales.
Assuming achievement of current sales volume and cost
estimates and average prices of $1,200 per ounce of gold and
$9.50 per pound of molybdenum in 2014, we estimate that
average unit net cash costs (net of by-product credits) for our
South America mining operations would approximate $1.61 per
pound of copper in 2014, which are higher than 2013 average unit
net cash costs primarily because of lower volumes.