Freeport-McMoRan 2013 Annual Report Download - page 53

MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 ANNUAL REPORT | 51
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 Cobalt. The following tables
summarize the unit net cash costs and gross profit per pound
of copper and cobalt at our Africa 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.
2012 compared with 2011. Copper sales volumes from our Africa
mining operations increased to 336 million pounds of copper in
2012, compared with 283 million pounds of copper in 2011,
primarily reflecting higher mining and milling rates principally
related to the ramp-up of the expansion project.
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 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
2013 2012
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Cobalt Method Copper Cobalt
Revenues, excluding adjustments
a
$ 3.21 $ 3.21 $ 8.02 $ 3.51 $ 3.51 $ 7.83
Site production and delivery, before net noncash
and other costs shown below 1.43 1.35 4.35 1.49 1.39 4.86
Cobalt credits
b
(0.29) — — (0.33) — —
Royalty on metals 0.07 0.06 0.14 0.07 0.06 0.12
Unit net cash costs 1.21 1.41 4.49 1.23 1.45 4.98
Depreciation, depletion and amortization 0.54 0.48 1.00 0.52 0.47 0.67
Noncash and other costs, net 0.06 0.06 0.11 0.09 0.08 0.11
Total unit costs 1.81 1.95 5.60 1.84 2.00 5.76
Revenue adjustments, primarily for pricing on
prior period open sales — — 0.09 0.02 0.02 0.09
Gross profit per pound $ 1.40 $ 1.26 $ 2.51 $ 1.69 $ 1.53 $ 2.16
Copper sales (millions of recoverable pounds) 454 454 336 336
Cobalt sales (millions of contained pounds) 25 25
a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. Net of cobalt downstream processing and freight costs.
Lower unit net cash costs (net of cobalt credits) for our Africa
mining operations of $1.21 per pound of copper in 2013, compared
with $1.23 per pound of copper in 2012, primarily reflected higher
copper sales volumes, partly offset by lower cobalt credits.
Assuming achievement of current sales volume and cost
estimates, and an average cobalt market price of $12 per pound
for 2014, average unit net cash costs (net of cobalt credits) are
expected to approximate $1.28 per pound of copper in 2014.
Africa’s projected unit net cash costs for 2014 would change by
$0.08 per pound for each $2 per pound change in the average
price of cobalt during 2014.