Freeport-McMoRan 2003 Annual Report Download - page 31

2003 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 29
The lower mill throughput rate during 2003 primarily
reflects the impact of the fourth-quarter 2003 open
pit slippage and debris flow events and the subse-
quent clean-up efforts. The Grasberg open-pit mine
averaged 99,300 metric tons of ore per day in the
fourth quarter of 2003 and 191,100 metric tons per
day in the fourth quarter of 2002. At the Deep Ore
Zone underground mine, production averaged 42,800
metric tons of ore per day in the fourth quarter of
2003 and 40,500 metric tons of ore per day for
2003, compared with 30,200 metric tons of ore per
day in the fourth quarter of 2002 and 21,800 metric
tons of ore per day for 2002. Deep Ore Zone opera-
tions continue to perform above design capacity of
35,000 metric tons of ore per day, and studies are
ongoing to evaluate additional low-cost expansion
options to increase production from the Deep Ore
Zone underground operation. Production from our
other underground mine, the Intermediate Ore
Zone, averaged 6,800 metric tons of ore per day for
2003 and 19,300 metric tons of ore per day for
2002. The Intermediate Ore Zone underground mine
was depleted during the third quarter of 2003. During
its 10-year life, the Intermediate Ore Zone operation
produced almost 30 percent more copper and gold
than the initial reserve estimates.
PT Freeport Indonesia reported record-low average
unit net cash production costs of a net credit of
$(0.02) per pound in 2003, compared with $0.08
per pound in 2002. Unit site production and delivery
costs in 2003 averaged $0.48 per pound of copper,
$0.12 per pound higher than the $0.36 in 2002
primarily because of lower copper sales volumes.
Higher mine maintenance costs, stronger Indonesian
and Australian currencies and higher energy costs
also resulted in higher costs compared with 2002. In
the fourth quarter of 2003, PT Freeport Indonesia
changed its life-of-mine overburden-to-ore ratio to 2.1
to 1 from 1.9 to 1, and in the fourth quarter of
2002 the ratio changed to 1.9 to 1 from 1.8 to 1, as
discussed above. The fourth-quarter 2003 change
increased 2003 costs by $1.5 million or 0.1 cent per
pound. As of December 31, 2003, deferred mining
costs totaled $142.6 million compared with $78.2
million at December 31, 2002. See “Critical
Accounting Estimates” for a discussion of changes
in the estimated life-of-mine overburden-to-ore ratio.
Gold credits for 2003 of $0.70 per pound were
higher than the gold credits of $0.48 per pound in
2002 primarily because of higher gold sales volumes
and prices in 2003. Gold ore grades for 2003
improved by 24 percent to 1.54 grams per metric ton
in 2003 from 1.24 grams per metric ton in 2002.
Because of the physical characteristics of the Grasberg
ore body, the sequencing of mining results in pro-
duction of ore of varying grades, more significantly for
gold. Assuming average gold prices of $400 per ounce
and copper and gold sales of 1.0 billion pounds and
1.5 million ounces for 2004, and 1.5 billion pounds
and 2.9 million ounces for 2005, PT Freeport
Indonesia expects its net cash production costs,
including gold and silver credits, to average approxi-
mately $0.25 per pound in 2004 and a net credit of
$(0.12) per pound in 2005. The weighted average
net cash production cost for the two-year period
would approximate less than $0.05 per pound.
Because the majority of PT Freeport Indonesia’s
costs are fixed, unit costs vary with the volumes sold
and will therefore be higher than the $0.25 per
pound projected annual average during the first half
of 2004 and lower during the second half. In addi-
tion, treatment charges are expected to be higher in
the first half of 2004 than the approximate $0.18 per
pound average over the last three years because of
the mix of customers. Net unit cash production costs
for 2004 would change approximately $0.03 per
pound for each $25 per ounce change in the aver-
age price of gold.
As a result of the lower copper production and sales
in 2003, PT Freeport Indonesia’s depreciation rate
per pound of copper increased to $0.15 for 2003
compared with $0.14 for 2002. For 2004, PT
Freeport Indonesia expects its depreciation rate to
increase to approximately $0.16 per pound, primarily
because of lower projected copper production and
sales. Because certain assets are depreciated on a
straight-line basis, the rate per pound will be higher
than the expected 2004 average during the first
half of the year and lower during the second half.
PT Freeport Indonesia Operating Results –
2002 Compared with 2001
Record annual copper sales volumes of 1,522.3
million pounds for 2002 were 9 percent higher than
the 1,399.1 million pounds in 2001. Revenues for
2002 also benefited from higher price realizations of
$0.71 per pound of copper ($0.69 for 2001) and
MANAGEMENT’S DISCUSSION AND ANALYSIS
Years Ended December 31, 2003 2002 2001
Grasberg open pit 155,700 194,500 211,400
Deep Ore Zone underground mine 40,500 21,800 5,500
Intermediate Ore Zone underground mine 6,800 19,300 20,900
Total mill throughput 203,000 235,600 237,800