Freeport-McMoRan 2004 Annual Report Download - page 24
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Please find page 24 of the 2004 Freeport-McMoRan annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Management’s Discussion and Analysis
22| FREEPORT-McMoRan COPPER & GOLD INC.
Thepositivemarketenvironmentandinvestorsentiment
towardgoldcontinuedduring2004withgoldpricesranging
from$374to$456perounce,supportedbyaweakU.S.dollar
reflectinglargeU.S.deficits,ongoinggeopoliticalstrifeand
terrorismconcerns,growinginvestmentdemandforgoldand
actionsbygoldproducerstoreducehedgepositions.Gold
pricesaveraged$410perouncein2004.Recentmovements
ingoldpriceshavecloselyfollowedmovementsintheU.S.
dollaragainstothercurrenciesandmostanalystsanticipate
thataweakU.S.dollarwillcontinuetosupportgoldprices.
TheLondongoldpriceclosedatapproximately$435per
ounceonFebruary28,2005.
Asshowninthegraphsabove,worldmetalprices
forcopperhavefluctuatedduringtheperiodfrom1992
throughFebruary2005fromalowofapproximately$0.60per
poundin2001toahighofapproximately$1.54perpound
onFebruary28,2005,andworldgoldpriceshavefluctuated
duringtheperiodfrom1998throughFebruary2005froma
lowofapproximately$250perouncein1999toahighof
approximately$456perouncein2004.Copperandgold
pricesareaffectedbynumerousfactorsbeyondourcontrol
asdescribedfurtherinourForm10-Kfortheyearended
December31,2004.
CRITICAL ACCOUNTING ESTIMATES
Management’sdiscussionandanalysisofourfinancial
conditionandresultsofoperationsarebasedonourconsoli-
datedfinancialstatements,whichhavebeenpreparedin
conformitywithaccountingprinciplesgenerallyaccepted
intheUnitedStates.Thepreparationofthesestatements
requiresthatwemakeestimatesandassumptionsthat
affectthereportedamountsofassets,liabilities,revenues
andexpenses.Webasetheseestimatesonhistoricalexperi-
enceandonassumptionsthatweconsiderreasonableunder
thecircumstances;however,reportedresultscoulddiffer
fromthosebasedonthecurrentestimatesunderdifferent
assumptionsorconditions.Theareasrequiringtheuseof
management’sestimatesarediscussedinNote1of“Notes
toConsolidatedFinancialStatements”underthesubheading
“UseofEstimates.”Managementhasreviewedthefollowing
discussionofitsdevelopmentandselectionofcritical
accountingestimateswiththeAuditCommitteeofourBoard
ofDirectors.
• Depreciation and Amortization –AsdiscussedinNote
1of“NotestoConsolidatedFinancialStatements,”we
depreciateourminingandmillingassetsusingtheunit-of-
productionmethodbasedonourestimatesofourproven
andprobablerecoverablecopperreserves.Wehaveother
assetsthatwedepreciateonastraight-linebasisover
theirestimatedusefullives.Ourestimatesofprovenand
probablerecoverablecopperreservesandoftheuseful
livesofourstraight-lineassetsimpactourdepreciation
andamortizationexpense.Theseestimatesaffectboth
our“miningandexploration”and“smeltingandrefining”
segments.
EffectiveJanuary1,2002,wechangedourmethodof
computingdepreciationforPTFreeportIndonesia’smining
andmillinglife-of-mineassets.SeeNote1of“Notesto
ConsolidatedFinancialStatements”foradiscussionof
thischange.Thecumulativeeffectofthischangethrough
December31,2001,asreflectedinour2002results,
reducednetincomeby$3.0million($0.02pershare),net
oftaxesandminorityinterestsharing.
Theaccountingestimatesrelatedtodepreciationand
amortizationarecriticalaccountingestimatesbecause
(1)thedeterminationofcopperreservesinvolvesuncer-
taintieswithrespecttotheultimategeologyofour
reservesandtheassumptionsusedindeterminingthe
economicfeasibilityofminingthosereserves,including
estimatedcopperandgoldpricesandcostsofconducting
futureminingactivities,and(2)changesinestimated
provenandprobablerecoverablecopperreservesanduseful
assetlivescanhaveamaterialimpactonnetincome.
Weperformannualassessmentsofourexistingassets,
includingareviewofassetcostsanddepreciablelives,in
connectionwiththereviewofmineoperatinganddevelop-
mentplans.Whenwedeterminethatassignedassetlives
donotreflecttheexpectedremainingperiodofbenefit,
wemakeprospectivechangestothosedepreciablelives.
Thereareanumberofuncertaintiesinherentin
estimatingquantitiesofreserves,includingmanyfactors
beyondourcontrol.Orereservesestimatesarebasedupon
engineeringevaluationsofsamplingsofdrillholesand
otheropenings.Ourestimatesofprovenandprobable
recoverablereservesarepreparedbyouremployeesand
reviewedandverifiedbyindependentexpertsinmining,
geologyandreservedetermination.AsofDecember31,
2004,aggregateprovenandprobablerecoverablecopper
reservestotaled56.2billionpoundsandPTFreeport
Indonesia’sestimatedsharetotaled40.5billionpounds.
London Gold Prices
London Gold Prices
Through February 28, 2005
Dollars per ounce
$300
$350
$400
$450
$500
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