Freeport-McMoRan 2003 Annual Report Download - page 33

2003 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 31
2004, including Rio Tinto’s share, is expected to total
approximately $13 million with most of the effort
focused on drilling below the current Mill Level Zone
ore body. Net of Rio Tinto’s share, PT Freeport
Indonesia’s share of proven and probable recoverable
reserves as of December 31, 2003, was 39.7 billion
pounds of copper, 46.6 million ounces of gold and
116.8 million ounces of silver. FCX’s equity interest in
proven and probable recoverable reserves as of
December 31, 2003, was 36.0 billion pounds of
copper, 42.2 million ounces of gold and 105.9 million
ounces of silver (see Note 13 of “Notes to
Consolidated Financial Statements”). PT Freeport
Indonesia’s share of reserve additions replaced
approximately 123 percent of its 2003 copper produc-
tion, 24 percent of 2003 gold production and 245 per-
cent of 2003 silver production. Estimated recoverable
reserves were assessed using a copper price of
$0.85 per pound and a gold price of $270 per ounce.
If we adjusted metal prices used in our reserve esti-
mates to the approximate average London spot prices
for the past three years, i.e., copper prices adjusted
from $0.85 per pound to $0.74 per pound and gold
prices adjusted from $270 per ounce to $315 per
ounce, there would be no change in our proven and
probable reserves.
Field exploration activities outside of our current
mining operations area are in suspension due to
safety and security issues and uncertainty relating to
a possible conflict between our mining and exploration
rights in certain forest areas covered by our Contracts
of Work and an Indonesian law enacted in 1999
prohibiting open-pit mining in protected forest areas.
The current suspensions were granted for one-year
periods ending February 26, 2004, for Block B, March
31, 2004, for PT Nabire Bakti Mining and November
15, 2004, for Eastern Minerals. We are currently seek-
ing a renewal of the Block B suspension and
expect to continue to seek suspension renewals for
additional one-year periods by written request to the
Government of Indonesia for each of the suspended
areas if required. We cannot predict when we will
resume our exploration activities in these areas.
SMELTING AND REFINING OPERATIONS
Our investment in smelters (Atlantic Copper and PT
Smelting) serves an important role in our concentrate
marketing strategy. PT Freeport Indonesia generally
sells approximately one-half of its concentrate produc-
tion to its affiliated smelters, Atlantic Copper and PT
Smelting, and the remainder to other customers.
Treatment charges for smelting and refining copper
concentrates represent a cost to PT Freeport
Indonesia and income to Atlantic Copper and PT
Smelting. Through downstream integration, we are
assured placement of a significant portion of our con-
centrate production and operating hedges for treat-
ment and refining charges. While currently low
smelting and refining charges have adversely affected
the operating results of Atlantic Copper, these low
charges have benefited the operating results of PT
Freeport Indonesia’s mining operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Atlantic Copper Operating Results
Years Ended December 31, 2003 2002 2001
(In Millions)
Gross profit (loss) $(10.7) $11.2 $ (2.3)
Add depreciation and amortization expense 28.5 27.7 27.3
Other 4.6 4.5 0.7
Cash margin $22.4 $43.4 $ 25.7
Operating income (loss) (in millions) $(21.8) $2.6 $ (16.0)
Concentrate and scrap treated (metric tons) 964,400 1,016,700 891,100
Anode production (000s of pounds) 640,000 657,000 617,300
Treatment rates per pound $.16 $.17$.17
Cathode, wire rod and wire sales (000s of pounds) 546,800 556,500 549,800
Cathode cash production cost per pound before hedging $.16 $.12$.14
Gold sales in anodes and slimes (ounces) 929,700 813,900 831,300
Atlantic Copper Operating Results –
2003 Compared with 2002
Atlantic Copper’s cash margin was $21.0 million lower
at $22.4 million in 2003, compared with $43.4 million
in 2002, primarily because of lower treatment charge
rates and higher unit costs. Atlantic Copper’s cathode
cash production costs per pound of copper, before
currency hedging, averaged $0.16 in 2003 and $0.12
in 2002. The higher unit costs in 2003 primarily
reflect a stronger euro in relation to the U.S. dollar,
which added approximately $0.03 per pound to the
2003 costs when compared to the 2002 costs.
Atlantic Copper’s average treatment rates (including