Freeport-McMoRan 2007 Annual Report Download - page 52

FREEPORT-McMoRan COPPER & GOLD INC.
2007 Annual Report
50 Financial & Operating Information
Management’s Discussion and Analysis
spot metal prices for the past three years averaged $2.65 per pound for
copper and $582 per ounce for gold, and the Metals Week Molybdenum
Dealer Oxide price averaged $28.90 per pound for molybdenum.
Following provides a summary, by geographic region, of our estimated
recoverable proven and probable copper, gold and molybdenum reserves
at December 31, 2007:
Copper Gold Molybdenum
(billion (million (billion
pounds) ounces) pounds)
North America 25.8 0.2 1.8
South America 26.0 1.4 0.2
Indonesia 37.1 39.4 –
Africa 4.3 – –
Consolidated basisa 93.2 41.0 2.0
Net equity interestb 77.0 37.0 1.9
a. Consolidated basis reserves represent estimated metal quantities after reductions for joint venture
partner interests at the Morenci mine in North America and at the Grasberg mining complex in
Indonesia.
b. Net equity interest represents our net ownership interest (
i.e. , estimated consolidated reserves
further reduced for minority interests).
Net additions to recoverable copper reserves totaled approximately 2.3
billion pounds at our North American mines and approximately 1.8 billion
pounds at our South American mines primarily because of higher price
assumptions, partly offset by increased costs. These additions were partly
offset by reductions of approximately 0.7 billion pounds at our Indonesian
mining operations primarily because the Dom ore body was reclassified
as mineralized material following an updated risk assessment of the
Dom’s proximity to the mill complex and updates to the long-term mine
plans for the underground ore body. Following provides a rollforward
of the changes in our estimated recoverable proven and probable copper,
gold and molybdenum reserves for 2007:
Copper Gold Molybdenum
(billion (million (billion
pounds) ounces) pounds)
Reserves at December 31, 2006a 93.6 42.5 2.0
Net additions/revisions 3.5 0.8 0.1
Production (3.9) (2.3) (0.1)
Reserves at December 31, 2007 93.2 41.0 2.0
a. Includes Phelps Dodge reserves prior to the acquisition.
Refer to Note 19 for further details of estimated recoverable reserves.
EXPLORATION ACTIVITIES
We are conducting exploration activities near our existing mines and in
other high potential areas around the world. Aggregate exploration
expenditures in 2007 totaled $119 million, and are expected to approximate
$175 million in 2008.
Our exploration efforts in North America include drilling of the Lone
Star deposit located approximately four miles from the ore body within
the Safford district, as well as targets in the Morenci and Bagdad districts,
and near the Henderson molybdenum ore body. In South America,
exploration is ongoing in and around the Cerro Verde, Candelaria and Ojos
del Salado deposits. In Africa, we are actively pursuing targets outside
of the area of initial development at Tenke Fungurume. The number of drill
rigs operating on these and other programs near our mine sites has
increased from 26 at the end of March 2007 to 55 at year end 2007.
PT Freeport Indonesia’s exploration efforts in Indonesia include testing
extensions of the Deep Grasberg and Kucing Liar mine complex and
evaluating targets in the area between the Ertsberg East and Grasberg
mineral systems from the new Common Infrastructure tunnels. Initial drill
results from the Common Infrastructure tunnel are positive and additional
drilling is in process. We continue efforts to resume exploration activities
in certain prospective areas in Papua, outside Block A (the Grasberg
contract area).
ATLANTIC COPPER SMELTING & REFINING
Our investment in smelters serves an important role in our concentrate
marketing strategy. PT Freeport Indonesia generally sells, under long-term
contracts, approximately one-half of its concentrate production 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 PT Freeport Indonesia’s
concentrate production. Smelting and refining charges consist of a base
rate and, in certain contracts, price participation based on copper prices.
Higher treatment and refining charges benefit our smelter operations
at Atlantic Copper and adversely affect our mining operations in Indonesia
and South America. North American mining operations are not
significantly affected by changes in treatment and refining charges
because these operations are fully integrated.
Atlantic Copper has a labor contract covering certain employees, which
expired in December 2007. The contract has been provisionally extended
and is currently being renegotiated.
The following discussion of Atlantic Copper’s operations covers the
years ended December 31, 2007, 2006 and 2005:
Years Ended December 31, 2007 2006 2005
Gross profit $ 23 $ 90 $ 46
Add depreciation and amortization expense 36 33 29
Other 1 – 3
Cash margin $ 60 $ 123 $ 78
Operating income $ 3 $ 74 $ 35
Concentrate and scrap treated (thousands
of metric tons) 952 954 975
Anodes production (millions of pounds) 565 581 627
Treatment rates per pound $ 0.27 $ 0.33 $ 0.23
Cathodes sales (millions of pounds) 555 529 549
Gold sales in anodes and slimes
(thousands of ounces) 663 667 543