Freeport-McMoRan 2013 Annual Report Download - page 55

MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 ANNUAL REPORT | 53
intercompany volumes resulted in net reductions to net income
attributable to common stockholders of $17 million ($0.02 per
share) in 2013, compared with net reductions of $80 million ($0.08
per share) in 2012 and net additions of $156 million ($0.16 per share)
in 2011. Our net deferred profits on inventories at Atlantic Copper
and PT Smelting to be recognized in future periods’ net income
attributable to common stockholders totaled $127 million at
December 31, 2013. Quarterly variations in ore grades, the timing of
intercompany shipments and changes in product prices will result
in variability in our net deferred profits and quarterly earnings.
Oil and Gas Operations
As further discussed in Note 2, during second-quarter 2013, we
acquired oil and gas operations by completing the acquisitions of
PXP and MMR (collectively FM O&G). Our oil and gas operations
provide exposure to energy markets with positive fundamentals,
strong margins and cash flows, and a large resource base with
financially attractive exploration and development opportunities.
The portfolio of assets includes oil production facilities and
growth potential in the Deepwater GOM, oil production from the
onshore Eagle Ford shale play in Texas, oil production facilities
onshore and offshore California, onshore natural gas resources in
the Haynesville shale play in Louisiana, natural gas production
from the Madden area in central Wyoming, and an industry-leading
position in the emerging shallow-water Inboard Lower Tertiary/
Cretaceous natural gas trend on the Shelf of the GOM and
onshore in South Louisiana. In 2013, more than 90 percent of our
oil and gas revenues were from oil and NGLs.
Exploration, Operating and Development Activities. Our oil and
gas operations have significant proved, probable and possible
reserves with financially attractive organic growth opportunities.
The portfolio includes a broad range of development
opportunities and high-potential exploration prospects.
Substantial capital expenditures will continue to be required for
our oil and gas exploration and development activities, which are
expected to be funded by oil and gas operating cash flows and
proceeds of asset sales.
Operating cash flows from oil and gas operations totaled
$1.8 billion for the seven-month period following the acquisition
date. Capital expenditures for our oil and gas operations totaled
$1.45 billion for the seven-month period following the acquisition
date, including $503 million incurred for Eagle Ford, $392 million
for the GOM (principally Deepwater), $171 million for California and
$197 million for the Inboard Lower Tertiary/Cretaceous natural
gas trend. Capital expenditures for our oil and gas operations
are projected to approximate $3 billion for 2014, including
approximately $1.5 billion incurred for the Deepwater GOM,
$0.4 billion for Eagle Ford and $0.3 billion for the Inboard Lower
Tertiary/Cretaceous natural gas trend.
2013
a
2012
a
2011
a
Revenues, excluding adjustments
b
$ 11. 65 $ 1 4 .27 $ 16.42
Site production and delivery,
before net noncash and other costs
shown below 6.24 6.19 5.46
Treatment charges and other 0.91 0.88 0.88
Unit net cash costs 7.15 7.07 6.34
Depreciation, depletion and amortization 1.68 0.97 0.96
Noncash and other costs, net 0.29 0.24 0.04
Total unit costs 9.12 8.28 7.34
Gross profit per pound $ 2.53 $ 5.99 $ 9.08
Molybdenum sales
(millions of recoverable pounds)
b
49 34 38
a. The year 2013 reflects operating data for the Henderson and Climax mines; 2012 and 2011
reflect the results of only the Henderson mine.
b. Revenues reflect sales of the molybdenum mines’ production to our molybdenum sales
company at market-based pricing. On a consolidated basis, realizations are based on
actual contract terms of sales made to third parties. As a result, our consolidated average
realized price per pound of molybdenum (refer to “Consolidated Results”) will differ from
the amounts reported in this table.
Average unit net cash costs for our molybdenum mines totaled
$7.15 per pound of molybdenum in 2013, compared with
Henderson’s unit net cash costs of $7.07 per pound in 2012 and
$6.34 per pound in 2011. Assuming achievement of current sales
volume and cost estimates, we estimate unit net cash costs for
the molybdenum mines to average $7.25 per pound of
molybdenum in 2014.
Smelting & Refining
Atlantic Copper, our wholly owned subsidiary located in Spain,
smelts and refines copper concentrates and markets refined
copper and precious metals in slimes. During 2013, Atlantic Copper
purchased 32 percent of its concentrate requirements from our
South America mining operations, 16 percent from our Indonesia
mining operations and 13 percent from our North America copper
mines, with the remainder purchased from third parties. Through
this form of downstream integration, we are assured placement of
a significant portion of our concentrate production.
Smelting and refining charges consist of a base rate and, in
certain contracts, price participation based on copper prices.
Treatment charges for smelting and refining copper concentrates
represent a cost to our mining operations, and income to Atlantic
Copper and PT Smelting. Thus, higher treatment and refining
charges benefit our smelter operations and adversely affect our
mining operations. Our North America copper mines are less
significantly affected by changes in treatment and refining
charges because these operations are largely integrated with our
wholly owned smelter located in Miami, Arizona.
We defer recognizing profits on sales from our mining
operations to Atlantic Copper and on 25 percent of Indonesia
mining’s sales to PT Smelting until final sales to third parties
occur. Changes in these deferrals attributable to variability in