Freeport-McMoRan 2007 Annual Report Download - page 46

FREEPORT-McMoRan COPPER & GOLD INC.
2007 Annual Report
44 Financial & Operating Information
Management’s Discussion and Analysis
Gross Profit per Pound of Copper (Pro Forma)
By-Product Co-Product
Year Ended December 31, 2007 Method Method
Revenues, after adjustments shown below $ 3.25 $ 3.25
Site production and delivery, before net noncash
and nonrecurring costs shown below 0.91 0.87
By-product credits (0.09) –
Treatment charges 0.20 0.20
Unit net cash costs 1.02 1.07
Depreciation, depletion and amortization 0.14 0.14
Noncash and nonrecurring costs, net – –
Total unit costs 1.16 1.21
Revenue adjustments, primarily for pricing on
prior period open sales and hedging 0.01 0.01
Other non-inventoriable costs (0.02) (0.02)
Gross profit $ 2.08 $ 2.03
Consolidated sales
Copper (millions of recoverable pounds) 1,399 1,399
By-Product Co-Product
Year Ended December 31, 2006 Method Method
Revenues, after adjustments shown below $ 3.14 $ 3.14
Site production and delivery, before net noncash
and nonrecurring costs shown below 0.82 0.79
By-product credits (0.08) –
Treatment charges 0.17 0.17
Unit net cash costs 0.91 0.96
Depreciation, depletion and amortization 0.17 0.17
Noncash and nonrecurring costs, net – –
Total unit costs 1.08 1.13
Revenue adjustments, primarily for pricing on
prior period open sales and hedging (0.02) (0.01)
Other non-inventoriable costs (0.02) (0.02)
Gross profit $ 2.02 $ 1.98
Consolidated sales
Copper (millions of recoverable pounds) 1,126 1,126
By-Product Co-Product
Year Ended December 31, 2005 Method Method
Revenues, after adjustments shown below $ 1.70 $ 1.70
Site production and delivery, before net noncash
and nonrecurring costs shown below 0.68 0.65
By-product credits (0.06) –
Treatment charges 0.10 0.09
Unit net cash costs 0.72 0.74
Depreciation, depletion and amortization 0.17 0.17
Noncash and nonrecurring costs, net – –
Total unit costs 0.89 0.91
Revenue adjustments, primarily for pricing on prior
period open sales and hedging (0.09) (0.09)
Other non-inventoriable costs (0.01) (0.01)
Gross profit $ 0.71 $ 0.69
Consolidated sales
Copper (millions of recoverable pounds) 1,093 1,093
2007 Compared with 2006. Because of the fixed nature of a large
portion of our South American mining costs, unit costs vary significantly
from period to period depending on volumes of copper sold during the
period. The South American mining operations have also experienced
production cost increases in recent years primarily as a result of higher
energy costs and costs of other consumables, higher mining costs and
milling rates, labor costs and other factors. Higher unit site production and
delivery costs in 2007, compared with 2006, primarily reflected higher
costs at El Abra because of lower copper sales. In addition, higher unit net
cash costs reflected the impact of Cerro Verde’s voluntary contribution
programs, including the liability associated with local mining fund
contributions (refer to “Other Mining Matters” for further discussion of the
Cerro Verde local mining fund contributions). These higher costs were
partially offset by lower overall costs at Cerro Verde associated with
significantly higher production resulting from the new concentrator.
Assuming average prices of $3.00 per pound of copper and
achievement of current 2008 sales estimates, we estimate that 2008
average unit net cash costs for our South American mines, including gold
and molybdenum credits, would approximate $1.05 per pound of copper.
2006 Compared with 2005 (Pro Forma). South American unit net
cash costs for 2006 were higher than in 2005 primarily because of higher
operating costs at Candelaria and El Abra associated with maintenance,
labor and other input costs. Additionally, higher unit net cash costs in
2006 reflected higher smelting and refining costs at Candelaria and higher
costs at Cerro Verde associated with voluntary contribution programs.
Indonesian Mining
PT Freeport Indonesia operates under an agreement, called a Contract of
Work, with the Government of Indonesia. The Contract of Work allows us
to conduct exploration, mining and production activities in a 24,700-acre
area, referred to as Block A, located in Papua, Indonesia. Under the
Contract of Work, PT Freeport Indonesia also conducts exploration activities
(which had been suspended, but resumed in 2007) in an approximate
500,000-acre area, referred to as Block B, in Papua. All of PT Freeport
Indonesia’s proven and probable mineral reserves and current mining
operations are located in Block A.
We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent
through our wholly owned subsidiary, PT Indocopper Investama, and the
Government of Indonesia owns the remaining 9.36 percent. In July 2004,
we received a request from the Indonesian Department of Energy and
Mineral Resources that we offer to sell shares in PT Indocopper Investama
to Indonesian nationals at fair market value. In response to this request
and in view of the potential benefits of having additional Indonesian
ownership in our operations, we agreed, at that time, to consider a potential
sale of an interest in PT Indocopper Investama at fair market value.
Neither our Contract of Work nor Indonesian law requires us to divest any
portion of our ownership interest in PT Freeport Indonesia or PT
Indocopper Investama.