Freeport-McMoRan 2003 Annual Report Download - page 23

2003 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 21
Outlook
Our copper and gold sales volumes have averaged
1.4 billion pounds of copper and 2.35 million ounces
of gold annually over the past five years. Average
annual sales volumes over the next five years are
expected to approximate 1.34 billion pounds of
copper and 2.2 million ounces of gold. Based on
these estimates, each $0.10 per pound change in
copper prices approximates $70 million in annual
cash flows and each $25 per ounce change in gold
prices approximates $28 million.
Following an October 9, 2003, slippage event and
the December 12, 2003, debris flow in a section of
the Grasberg open pit, PT Freeport Indonesia has redi-
rected its open-pit operations to accelerate removal
of waste material from the south wall to restore safe
access to the higher grade ore areas in the pit. These
activities have resulted in reduced production levels.
Ore previously forecast to be mined in 2004 is cur-
rently available for mining and will be mined once safe
access is assured. Based on the substantial progress
achieved to date, PT Freeport Indonesia expects to
return to its key ore areas in the second quarter of
2004. In the near term, PT Freeport Indonesia’s ore is
expected to be limited to its Deep Ore Zone under-
ground mine and low grade material from the open pit.
As a result of the mine sequencing changes at the
open pit, a portion of the higher grade ore previously
forecast to be mined in 2004 is expected to be deferred
to future periods, with the substantial majority of the
deferred ore expected to be mined in 2005. These
mine sequencing changes are not expected to affect
long-term mine plans or recoverable ore reserves.
Our 2004 annual sales are expected to approxi-
mate 1.0 billion pounds of copper and 1.5 million
ounces of gold with a significant portion expected in
the second half, and 1.5 billion pounds of copper
and 2.9 million ounces of gold in 2005. Consolidated
operating cash flows for 2004 are expected to be
adversely affected by the timing of PT Freeport
Indonesia’s metal sales and Atlantic Copper’s operat-
ing results (see “Smelting and Refining Operations”).
Consolidated operating cash flows in 2005 are
expected to benefit from the projected increase in PT
Freeport Indonesia metal sales.
Copper and Gold Markets
Copper inventories at the London Metal Exchange
(LME) and New York Commodity Exchange (COMEX)
have declined sharply in 2003 and have continued to
decline in 2004. The demand outlook for copper
improved throughout 2003 with continued strong
demand from China and emerging signs of increased
manufacturing activity around the world. Copper
prices rose sharply in the fourth quarter of 2003 and
early 2004 and are currently $____ per pound.
The consensus outlook for copper markets is
positive and virtually all industry analysts are
forecasting strong future copper prices in the next
two years of over $1.00 per pound.
Gold prices have also increased, with the price moving
in an inverse direction to the U.S. dollar. Gold prices
rose more than 50 percent from their 2001 lows in
tandem with ongoing geo-political strife and terrorist
fears, a weak U.S. dollar and large U.S. deficits, and
actions by gold producers to reduce hedge positions.
The current view toward gold prices expressed by
many market analysts is positive.
World metal prices for copper and gold have histori-
cally fluctuated widely and are affected by numerous
factors beyond our control as described further in our
Form 10-K for the year ended December 31, 2003.
MANAGEMENT’S DISCUSSION AND ANALYSIS
In millions of dollars
Debt, mandatorily redeemable preferred stock
and guaranteed debt subsequently repaid
Cash and restricted cash and investments
3,000
2,500
2,000
1,500
1,000
500
2000 2001 2002 2003
2,918
8
2,801
149
2,488
116
2,228
499