Freeport-McMoRan 2005 Annual Report Download - page 41

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cash฀costs,฀including฀gold฀and฀silver฀credits,฀would฀approximate฀
$0.51฀per฀pound.฀Forecasted฀unit฀net฀cash฀costs฀are฀calculated฀
on฀the฀same฀basis฀as฀the฀historical฀unit฀costs.฀Unit฀net฀cash฀
costs฀for฀2006฀would฀change฀by฀approximately฀$0.03฀per฀pound฀
for฀each฀$25฀per฀ounce฀change฀in฀the฀average฀price฀of฀gold฀
for฀2006.฀While฀aggregate฀costs฀are฀expected฀to฀be฀similar฀to฀
2005฀amounts,฀estimated฀unit฀cash฀costs฀for฀2006฀are฀projected฀
to฀be฀higher฀than฀the฀2005฀average,฀primarily฀because฀of฀lower฀
2006฀copper฀and฀gold฀sales฀volumes.฀Because฀the฀majority฀of฀
PT฀Freeport฀Indonesia’s฀costs฀are฀fixed,฀unit฀costs฀will฀vary฀
with฀the฀volumes฀sold฀and฀will฀therefore฀be฀higher฀during฀the฀
first฀half฀of฀2006฀and฀lower฀during฀the฀second฀half฀compared฀
to฀the฀projected฀annual฀average.
฀Unit฀Net฀Cash฀Costs:฀Co-Product฀Method฀–฀Using฀the฀co-
product฀method,฀unit฀site฀production฀and฀delivery฀costs฀in฀
2005฀averaged฀$0.44฀per฀pound฀of฀copper,฀compared฀with฀
$0.53฀in฀2004.฀For฀gold,฀unit฀site฀production฀and฀delivery฀costs฀
in฀2005฀averaged฀$108฀per฀ounce,฀compared฀with฀$159฀in฀
2004.฀As฀discussed฀above,฀unit฀site฀production฀and฀delivery฀
costs฀in฀2005฀benefited฀from฀higher฀sales฀volumes฀resulting฀
from฀higher฀ore฀grades,฀but฀were฀adversely฀affected฀by฀higher฀
energy฀costs฀and฀costs฀of฀other฀consumables,฀higher฀mining฀
costs฀and฀milling฀rates,฀labor฀costs฀and฀other฀factors.฀
Treatment฀charges฀per฀pound฀of฀copper฀were฀higher฀in฀2005฀
primarily฀because฀of฀higher฀rates฀and฀copper฀prices,฀while฀
treatment฀charges฀per฀ounce฀of฀gold฀were฀slightly฀lower฀in฀
2005฀primarily฀because฀of฀our฀method฀of฀allocating฀these฀
costs.฀Royalties฀per฀pound฀and฀per฀ounce฀were฀higher฀in฀2005฀
because฀of฀higher฀sales฀volumes฀and฀realized฀prices฀compared฀
with฀2004.
PT฀Freeport฀Indonesia฀Operating฀Results฀–฀฀
2004฀Compared฀with฀2003
PT฀Freeport฀Indonesia’s฀2004฀revenues฀were฀slightly฀higher฀
than฀2003฀revenues,฀with฀higher฀price฀realizations฀offset฀by฀
lower฀sales฀volumes.฀PT฀Freeport฀Indonesia฀reported฀lower฀
production฀and฀sales฀in฀2004,฀reflecting฀the฀mining฀of฀lower-
grade฀material฀and฀accelerated฀overburden฀removal฀activities฀
following฀the฀fourth-quarter฀2003฀slippage฀and฀debris฀flow฀
events.฀Copper฀sales฀volumes฀totaled฀1.0฀billion฀pounds฀in฀
2004,฀23฀percent฀lower฀than฀the฀1.3฀billion฀pounds฀reported฀
in฀2003.฀Copper฀price฀realizations฀of฀$1.37฀per฀pound฀in฀2004฀
were฀$0.55฀per฀pound฀higher฀than฀the฀2003฀realizations฀of฀
$0.82฀per฀pound.฀Gold฀sales฀volumes฀totaled฀1,443,000฀ounces฀
in฀2004,฀42฀percent฀lower฀than฀the฀2,469,800฀ounces฀
reported฀in฀2003.฀Gold฀price฀realizations฀of฀$412.32฀per฀ounce฀
in฀2004฀were฀$54.71฀an฀ounce฀higher฀than฀the฀2003฀
realizations฀of฀$357.61฀per฀ounce,฀before฀realized฀gains฀related฀
to฀the฀redemption฀of฀our฀Gold-Denominated฀Preferred฀
Stock.฀Gold฀price฀realizations฀were฀$366.60฀per฀ounce฀in฀
2003฀after฀hedging฀gains฀from฀redemption฀of฀our฀Gold-
Denominated฀Preferred฀Stock.
฀ Total฀treatment฀charges฀for฀PT฀Freeport฀Indonesia฀in฀
2004฀were฀lower฀because฀of฀the฀lower฀volume฀of฀metal฀sales.฀
Royalty฀costs฀totaled฀$43.5฀million฀in฀2004฀compared฀with฀
$26.5฀million฀in฀2003,฀reflecting฀higher฀metal฀prices฀partly฀
offset฀by฀lower฀sales฀volumes.฀Royalty฀costs฀included฀no฀
additional฀royalties฀in฀2004฀and฀$6.4฀million฀of฀additional฀
royalties,฀discussed฀above,฀in฀2003.
฀ Following฀the฀fourth-quarter฀2003฀Grasberg฀open-pit฀
slippage฀and฀debris฀flow฀events,฀we฀accelerated฀the฀removal฀of฀
overburden฀and฀mined฀low-grade฀ore฀prior฀to฀restoring฀
safe฀access฀to฀higher-grade฀ore฀areas฀in฀the฀second฀quarter฀of฀
2004฀and฀resuming฀normal฀milling฀rates฀in฀June฀2004.฀Mill฀
throughput฀averaged฀185,100฀metric฀tons฀of฀ore฀per฀day฀in฀
2004฀and฀203,000฀metric฀tons฀of฀ore฀in฀2003.฀Approximate฀
average฀daily฀throughput฀processed฀at฀our฀mill฀facilities฀from฀
each฀of฀our฀producing฀mines฀follows฀(metric฀tons฀of฀ore฀฀฀
per฀day):฀
Years฀Ended฀December฀31,฀ ฀ 2004฀ 2003
Grasberg฀open฀pit฀ ฀ ฀ ฀141,500฀ ฀155,700
Deep฀Ore฀Zone฀ ฀ ฀ ฀ 43,600฀ ฀ 40,500
Intermediate฀Ore฀Zone฀ ฀ ฀ ฀ —฀ ฀ 6,800
฀ Total฀฀ ฀ ฀ ฀ ฀185,100฀ ฀203,000
Production฀from฀the฀DOZ฀underground฀mine฀averaged฀
43,600฀metric฀tons฀of฀ore฀per฀day,฀representing฀24฀percent฀of฀
total฀2004฀mill฀throughput.฀The฀Intermediate฀Ore฀Zone฀
underground฀mine฀was฀depleted฀during฀the฀third฀quarter฀of฀
2003,฀producing฀almost฀30฀percent฀more฀copper฀and฀gold฀
throughout฀its฀10-year฀life฀than฀the฀initial฀reserve฀estimates.
฀ Copper฀ore฀grades฀averaged฀0.87฀percent฀in฀2004,฀
compared฀with฀1.09฀percent฀in฀2003.฀Copper฀recovery฀rates฀
were฀88.6฀percent฀for฀2004,฀compared฀with฀89.0฀percent฀for฀
2003.฀In฀2004,฀gold฀ore฀grades฀averaged฀0.88฀g/t,฀compared฀
with฀1.54฀g/t฀in฀2003.฀Gold฀recovery฀rates฀were฀81.8฀percent฀
for฀2004,฀compared฀with฀87.3฀percent฀for฀2003.฀The฀mining฀฀
of฀lower฀grade฀material฀resulted฀in฀lower฀2004฀recovery฀rates.
Management’s Discussion and Analysis
฀38฀|฀FREEPORT-McMoRan฀COPPER฀&฀GOLD฀INC.฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION