Freeport-McMoRan 2013 Annual Report Download - page 54

MANAGEMENT’S DISCUSSION AND ANALYSIS
52 | FREEPORT-McMoRan
Market conditions for molybdenum have declined in 2013
resulting from weak demand in the metallurgical sector and
increased supply. We continue to monitor market conditions
and will adjust our primary molybdenum production as market
conditions warrant. Refer to “Consolidated Results” for our
consolidated molybdenum operating data, which includes sales
of molybdenum produced at our molybdenum mines and at our
North and South America copper mines, and refer to “Outlook”
for projected consolidated molybdenum sales volumes.
Unit Net Cash Costs. Unit net cash costs per pound of
molybdenum 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 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 Molybdenum. The following table
summarizes the unit net cash costs and gross profit per pound of
molybdenum at our Henderson and Climax molybdenum mines for
the year ended December 31, 2013, and at the Henderson mine for
the years ended December 31, 2012, and 2011. Refer to “Product
Revenues and Production Costs” for a reconciliation of unit net
cash costs per pound to production and delivery costs applicable to
sales reported in our consolidated financial statements.
Unit net cash costs (net of cobalt credits) for our Africa mining
operations of $1.23 per pound of copper in 2012 were higher than
unit net cash costs of $1.07 per pound of copper in 2011,
primarily reflecting higher mining and input costs (including
sulphuric acid and energy) and lower cobalt credits, partly
offset by higher volumes.
Molybdenum Mines
We have two wholly owned molybdenum mines in North America —
the Henderson underground mine and the Climax open-pit mine,
both in Colorado. The Henderson and Climax mines produce
high-purity, chemical-grade molybdenum concentrates, which are
typically further processed into value-added molybdenum
chemical products. The majority of the molybdenum concentrates
produced at the Henderson and Climax mines, as well as from
certain of our North and South America copper mines, are
processed at our own conversion facilities.
Operating Data. Following is summary operating data for the
Molybdenum operations for the years ended December 31.
2013 2012 2011
Molybdenum mines operating data
Molybdenum production
(millions of recoverable pounds) 49
a
41
a
38
Ore milled (metric tons per day)
b
3 5,7 0 0 20,800 22,300
Average molybdenum ore grade
(percent)
b
0.19 0.23 0.24
a. Includes molybdenum production from the Climax mine since the start of commercial
operations in May 2012.
b. The year 2013 reflects operating data for the Henderson and Climax mines; 2012 and 2011
reflect the operating data of only the Henderson mine.
2012 2011
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Cobalt Method Copper Cobalt
Revenues, excluding adjustments
a
$ 3.51 $ 3.51 $ 7.83 $ 3.74 $ 3.74 $ 9.99
Site production and delivery, before net noncash
and other costs shown below 1.49 1.39 4.86 1.57 1.39 5.58
Cobalt credits
b
(0.33) — — (0.58) — —
Royalty on metals 0.07 0.06 0.12 0.08 0.07 0.16
Unit net cash costs 1.23 1.45 4.98 1.07 1.46 5.74
Depreciation, depletion and amortization 0.52 0.47 0.67 0.50 0.42 0.78
Noncash and other costs, net 0.09 0.08 0.11 0.20 0.18 0.32
Total unit costs 1.84 2.00 5.76 1.77 2.06 6.84
Revenue adjustments, primarily for pricing on
prior period open sales 0.02 0.02 0.09 — — 0.06
Gross profit per pound $ 1.69 $ 1.53 $ 2.16 $ 1.97 $ 1.68 $ 3.21
Copper sales (millions of recoverable pounds) 336 336 283 283
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.