Freeport-McMoRan 2013 Annual Report Download - page 51

MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 ANNUAL REPORT | 49
expressed on a basis relating to the primary metal product
for our 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 metal mining companies, although
our measure may not be comparable to similarly titled measures
reported by other companies.
Gross Profit per Pound of Copper/per Ounce of Gold. The following
tables summarize the unit net cash costs and gross profit per
pound of copper and per ounce of gold at our Indonesia mining
operations for the years ended December 31. Refer to “Production
Revenues and Production Costs” for an explanation of “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.
At the Grasberg mine, the sequencing of mining areas with
varying ore grades causes fluctuations in quarterly and annual
production of copper and gold. Consolidated sales volumes
from our Indonesia mining operations are expected to approximate
1.1 billion pounds of copper and 1.65 million ounces of gold for
2014. Sales from Indonesia mining are expected to increase in 2014
through 2016 as PT-FI gains access to higher grade ore. PT-FI’s
estimated sales volumes are subject to change depending on timing
of resolution of the export matter described in ”Regulatory
Matters” above.
2012 compared with 2011. Sales volumes from our Indonesia
mining operations declined to 716 million pounds of copper and
915 thousand ounces of gold in 2012, compared with 846 million
pounds of copper and 1.3 million ounces of gold in 2011 primarily
reflecting lower ore grades.
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
2013 2012
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 3.28 $ 3.28 $ 1,312 $ 3.58 $ 3.58 $ 1,664
Site production and delivery, before net noncash
and other costs shown below 2.46 1.62 648 3.12 1.93 894
Gold and silver credits (1.69) — — (2.22) — —
Treatment charges 0.23 0.15 61 0.21 0.13 61
Royalty on metals 0.12 0.08 33 0.13 0.08 38
Unit net cash costs 1.12 1.85 742 1.24 2.14 993
Depreciation and amortization 0.28 0.19 73 0.30 0.18 85
Noncash and other costs, net 0.13 0.09 35 0.11 0.07 33
Total unit costs 1.53 2.13 850 1.65 2.39 1,111
Revenue adjustments, primarily for pricing on
prior period open sales — — (1) 0.02 0.02 3
PT Smelting intercompany loss (0.02) (0.01) (6) (0.05) (0.03) (15)
Gross profit per pound/ounce $ 1.73 $ 1.14 $ 455 $ 1.90 $ 1.18 $ 541
Copper sales (millions of recoverable pounds) 885 885 716 716
Gold sales (thousands of recoverable ounces) 1,096 915
A significant portion of PT-FI’s costs are fixed and unit costs vary
depending on sales volumes. Indonesia’s unit net cash costs (net
of gold and silver credits) averaged $1.12 per pound of copper in
2013, compared with $1.24 per pound in 2012, primarily reflecting
higher volumes.
Treatment charges vary with the volume of metals sold and the
price of copper, and royalties vary with the volume of metals sold
and the prices of copper and gold.
Because certain assets are depreciated on a straight-line basis,
PT-FI’s unit depreciation rate varies with 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.
Intercompany profit (loss) from sales to PT Smelting represents
the elimination of 25 percent of PT-FI’s sales to PT Smelting.
Assuming achievement of current sales volume and cost
estimates, and an average gold price of $1,200 per ounce for 2014,
we estimate that Indonesia’s unit net cash costs (net of gold and
silver credits) are expected to approximate $0.81 per pound of
copper for the year 2014, which are lower than 2013 unit cash
costs primarily because of higher volumes. Indonesia’s projected
unit net cash costs would change by approximately $0.075 per
pound for each $50 per ounce change in the average price of gold
during 2014. Because of the fixed nature of a large portion of
Indonesia’s costs, unit costs vary from quarter to quarter
depending on copper and gold volumes.