Freeport-McMoRan 2005 Annual Report Download - page 42

฀฀ Unit฀Net฀Cash฀Costs:฀By-Product฀Method฀–฀Unit฀net฀cash฀฀
costs,฀including฀gold฀and฀silver฀credits,฀averaged฀$0.40฀per฀
pound฀of฀copper฀during฀2004,฀compared฀with฀a฀net฀credit฀฀฀฀฀฀
of฀$(0.02)฀per฀pound฀for฀2003.฀Higher฀unit฀site฀production฀
and฀delivery฀costs฀in฀2004฀reflected฀significantly฀lower฀sales฀
volumes฀resulting฀from฀lower฀ore฀grades฀and฀the฀primarily฀
fixed฀nature฀of฀a฀large฀portion฀of฀PT฀Freeport฀Indonesia’s฀
cost฀structure.฀In฀addition,฀the฀lower฀sales฀volumes฀resulted฀in฀
PT฀Freeport฀Indonesia฀being฀allocated฀a฀larger฀percentage฀of฀
those฀fixed฀costs฀in฀2004฀under฀our฀joint฀venture฀arrangements฀
with฀Rio฀Tinto.฀To฀a฀lesser฀extent,฀2004฀unit฀costs฀were฀
impacted฀by฀higher฀energy฀costs,฀increased฀maintenance฀
costs,฀the฀impact฀of฀a฀stronger฀Australian฀dollar฀and฀
increased฀treatment฀and฀refining฀charge฀rates฀caused฀by฀
higher฀copper฀prices฀and฀our฀customer฀mix.
฀ Unit฀site฀production฀and฀delivery฀costs฀in฀2004฀averaged฀฀฀฀฀฀฀฀
$0.77฀per฀pound฀of฀copper,฀$0.29฀per฀pound฀higher฀than฀
the฀$0.48฀reported฀in฀2003.฀Unit฀production฀and฀delivery฀costs฀
are฀net฀of฀deferred฀mining฀costs฀of฀$0.08฀per฀pound฀฀฀฀฀฀฀฀
($77.8฀million)฀for฀2004฀and฀$0.05฀per฀pound฀($64.4฀million)฀
for฀2003.฀The฀increase฀in฀deferred฀mining฀costs฀included฀the฀
effects฀of฀PT฀Freeport฀Indonesia’s฀accelerated฀overburden฀
removal฀efforts฀during฀2004.฀In฀the฀fourth฀quarter฀of฀2004,฀฀฀฀฀฀฀
Management’s Discussion and Analysis
฀39฀|฀2005฀ANNUAL฀REPORT฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION
PT฀Freeport฀Indonesia฀changed฀its฀life-of-mine฀overburden-to-ore฀
ratio฀to฀2.4฀to฀1฀from฀2.2฀to฀1,฀and฀in฀the฀fourth฀quarter฀of฀2003฀
the฀ratio฀changed฀to฀2.1฀to฀1฀from฀1.9฀to฀1.฀The฀fourth-quarter฀
2004฀change฀increased฀2004฀costs฀by฀$5.5฀million฀or฀0.6฀cents฀
per฀pound.฀See฀“Critical฀Accounting฀Estimates”฀for฀a฀discussion฀
of฀changes฀in฀the฀estimated฀life-of-mine฀overburden-to-ore฀ratio.
฀ Gold฀and฀silver฀credits฀were฀$0.62฀per฀pound฀for฀2004,฀
compared฀with฀$0.70฀for฀2003.฀The฀decrease฀primarily฀reflects฀
the฀reduced฀production฀and฀sales฀of฀gold฀during฀2004,฀partly฀
offset฀by฀the฀improved฀gold฀realizations.฀Royalties฀of฀$0.04฀per฀
pound฀in฀2004฀were฀$0.02฀per฀pound฀above฀the฀2003฀period฀
primarily฀because฀of฀higher฀copper฀and฀gold฀prices.฀As฀a฀result฀
of฀the฀lower฀copper฀production฀and฀sales฀in฀2004,฀PT฀Freeport฀
Indonesia’s฀depreciation฀rate฀per฀pound฀of฀copper฀increased฀
to฀$0.17฀for฀2004฀compared฀with฀$0.15฀for฀2003.
฀Unit฀Net฀Cash฀Costs:฀Co-Product฀Method฀–฀Under฀the฀
co-product฀method,฀unit฀site฀production฀and฀delivery฀costs฀
in฀2004฀averaged฀$0.53฀per฀pound฀of฀copper,฀compared฀with฀
$0.26฀in฀2003.฀For฀gold,฀unit฀site฀production฀and฀delivery฀costs฀
in฀2004฀averaged฀$159฀per฀ounce,฀compared฀with฀$112฀in฀
2003.฀The฀higher฀unit฀costs฀in฀2004฀primarily฀reflect฀the฀lower฀
sales฀volumes฀for฀copper฀and฀gold฀in฀2004.฀Treatment฀charges฀
per฀pound฀of฀copper฀were฀higher฀in฀2004฀because฀of฀higher฀
Gross฀Profit฀per฀Pound฀of฀Copper฀(¢)/per฀Ounce฀฀of฀Gold฀and฀Silver฀($)
Year฀Ended฀December฀31,฀2003
Pounds฀of฀copper฀sold฀(000s)฀ ฀ ฀ ฀ 1,295,600฀ ฀1,295,600
Ounces฀of฀gold฀sold฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ 2,469,800
Ounces฀of฀silver฀sold฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀4,126,700
฀ By-Product฀ ฀ Co-Product฀Method฀ ฀
฀ Method฀ Copper฀ Gold฀ Silver
Revenues,฀after฀adjustments฀shown฀below฀ ฀ ฀ ฀ 81.9¢฀ ฀ 81.9¢฀ $฀366.60฀ $฀5.15
Site฀production฀and฀delivery,฀before฀net฀reclamation,฀noncash฀and฀nonrecurring
฀ costs฀shown฀below฀ ฀ ฀ ฀ 47.6a฀ ฀ 25.7b฀ ฀ 112.44b฀ ฀ 1.49b
Gold฀and฀silver฀credits฀ ฀ ฀ ฀ (69.8)฀ ฀ —฀ ฀ —฀ ฀ —
Treatment฀charges฀ ฀ ฀ ฀ 17.9฀ ฀ 9.7฀ ฀ 42.24฀ ฀ 0.56
Royalty฀on฀metals฀ ฀ ฀ ฀ 2.0฀ ฀ 1.1฀ ฀ 4.82฀ ฀ 0.06
฀ Unit฀net฀cash฀costs฀(credits)c฀ ฀ ฀ ฀ (2.3)฀ ฀ 36.5฀ ฀ 159.50฀ ฀ 2.11
Depreciation฀and฀amortization฀ ฀ ฀ ฀ 14.7฀ ฀ 7.9฀ ฀ 34.69฀ ฀ 0.46
Reclamation,฀noncash฀and฀nonrecurring฀costs,฀net฀ ฀ ฀ ฀ 1.2฀ ฀ 0.7฀ ฀ 2.91฀ ฀ 0.04
฀ Total฀unit฀costs฀ ฀ ฀ ฀ 13.6฀ ฀ 45.1฀ ฀ 197.10฀ ฀ 2.61
Revenue฀adjustments,฀primarily฀for฀pricing฀on฀prior฀period฀open฀sales฀
฀ and฀gold/silver฀hedging฀ ฀ ฀ ฀ 2.8฀ ฀ 1.0฀ ฀ 0.55฀ ฀ 0.01
PT฀Smelting฀intercompany฀profit฀elimination฀ ฀ ฀ ฀ 0.5฀ ฀ 0.3฀ ฀ 1.28฀ ฀ 0.02
Reclamation฀incurred฀ ฀ ฀ ฀ 0.1฀ ฀ 0.1฀ ฀ 0.22฀ ฀ —
Gross฀profit฀per฀pound/ounce฀ ฀ ฀ ฀ 71.7¢฀ ฀ 38.2¢฀ $฀171.55฀ $฀2.57
a.฀ Net฀of฀deferred฀mining฀costs฀totaling฀$64.4฀million฀or฀5.0¢฀per฀pound.฀Upon฀adoption฀of฀EITF฀04-6฀(See฀“New฀Accounting฀Standards”฀and฀Note฀1),฀mining฀
costs฀will฀no฀longer฀be฀deferred.
b.฀ Net฀of฀deferred฀mining฀costs฀totaling฀$34.8฀million฀or฀2.7¢฀per฀pound฀for฀copper,฀$29.0฀million฀or฀$11.73฀per฀ounce฀for฀gold฀and฀$0.6฀million฀or฀$0.16฀per฀
ounce฀for฀silver฀(see฀Note฀a฀above).
c.฀ For฀a฀reconciliation฀of฀unit฀net฀cash฀costs฀(credits)฀to฀production฀and฀delivery฀costs฀applicable฀to฀sales฀reported฀in฀FCX’s฀consolidated฀financial฀statements฀
refer฀to฀“Product฀Revenues฀and฀Production฀Costs.”