Freeport-McMoRan 2003 Annual Report Download - page 30

28 FREEPORT-McMoRan COPPER & GOLD INC. 2003 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
GROSS PROFIT PER POUND OF COPPER (CENTS)
Years Ended December 31, 2003 2002 2001
Average realized price 81.9 70.6 69.0
Production costs:
Site production and delivery 47.6
a
36.0
a
38.8
a
Gold and silver credits (69.8) (48.2) (51.9)
Treatment charges 17.9 18.3 18.2
Royalty on metals 2.0 1.6 1.7
Net cash production costs (credits) (2.3) 7.7 6.8
Depreciation and amortization 14.7 14.4 18.0
Reclamation, noncash and other 1.2 0.5 0.2
Total production costs 13.6 22.6 25.0
Adjustments, primarily for copper pricing on prior year open sales
and gold/silver hedging 2.8 0.9 0.1
Gross profit per pound of copper 71.1 48.9 44.1
a. Net of deferred mining costs totaling $64.4 million or 5.0 cents per pound in 2003, $30.6 million or 2.0 cents per pound in 2002 and $29.4 million or
2.1 cents per pound in 2001.
Net cash production costs (credits) per pound of
copper is a measure intended to provide investors
with information about the cash generating capacity of
our mining operations in Indonesia. This measure is
presented by other copper and gold mining compa-
nies, although our measures may not be comparable
to similarly titled measures reported by other compa-
nies. For a reconciliation of cash production costs
per pound to production and delivery costs applicable
to sales reported in our consolidated financial state-
ments see “PT Freeport Indonesia Product Revenues
and Net Cash Production Costs (Credits)” under
“Product Revenues and Production Costs.”
PT Freeport Indonesia Operating Results –
2003 Compared with 2002
PT Freeport Indonesia’s revenues increased by $225.6
million in 2003 from 2002. Both copper and gold
price realizations improved during 2003 with copper
approximately 15 percent higher at $0.82 per pound
and gold approximately 18 percent higher at $366.60
per ounce. Gold revenues include a $22.1 million
($8.99 per ounce) hedging gain from redemption of
our Gold-Denominated Preferred Stock. Copper sales
volumes declined 15 percent to 1.3 billion pounds in
2003 from 1.5 billion pounds in 2002 because of
lower copper ore grades and reduced mill throughput
resulting from the fourth quarter slippage and debris
flow events. Gold sales volumes increased 8 percent
to 2.5 million ounces in 2003 from 2.3 million ounces
in 2002 because of higher gold ore grades partly
offset by lower mill throughput. Treatment charges
were $46.6 million lower in 2003 compared with
2002 because of lower copper sales volumes and
market treatment rates. Royalties were higher at
$26.5 million for 2003 compared with $24.5 million
for 2002 primarily reflecting higher metal prices.
A portion of treatment charges varies with the price
of copper, and royalties vary with volumes and prices
of copper and gold.
The royalty rate payable by PT Freeport Indonesia
under its Contract of Work varies from 1.5 percent
of copper net revenue at a copper price of $0.90 or
less per pound to 3.5 percent at a copper price of
$1.10 or more per pound. The Contract of Work
royalty rate for gold and silver sales is 1.0 percent.
In connection with our fourth concentrator mill
expansion completed in 1998, PT Freeport Indonesia
agreed to pay the Government of Indonesia voluntary
additional royalties (royalties not required by the
Contract of Work) to provide further support to the
local governments and the people of the Indonesian
province of Papua (see Note 1 of “Notes to
Consolidated Financial Statements”). As a result of
the recent rise in copper prices, we expect our 2004
royalty costs to increase compared with 2003 royalties
of $26.5 million. If copper prices average $1.10 per
pound and gold prices average $400 per ounce,
we would expect royalties to total approximately
$38 million for 2004. If copper prices average
$1.30 per pound and gold prices average $400 per
ounce, we would expect royalties to total approxi-
mately $45 million. These estimates assume 2004
sales volumes of 1.0 billion pounds of copper and
1.5 million ounces of gold.
Mill throughput averaged 203,000 metric tons of
ore per day in 2003 and 235,600 metric tons of
ore per day in 2002. Below is a summary in metric
tons per day of production by mine.